International economics pt.1

PRINCIPLE OF ABSOLUTE ADVANTAGE :

A country is said to have absolute advantage in the production of a good when it is more efficient in producing that good compared to the other country.

While explaining the concept of absolute advantage, we assume that:

• There are no trade barriers
• There is no transportation cost
• There is perfect mobility of resources between two countries
• The products that both countries produce are of similar quality

If a country specialises in producing a good on which it has an absolute advantage, then the total output will rise and the product not produced will be imported from the other country.

PRINCIPLE OF…