THEORIES OF INTERNATIONAL TRADE
1 Absolute cost advantage theory Comparative cost advantage theory
3 Reciprocal demand theory 4 Opportunity cost theory
5 Heckscher-Ohlin theory of international trade
ABSOLUTE COST ADVANTAGE THEORY
This theory was given by Adam smith in his book "Wealth of Nations" in 1776.
It States that international trade will be beneficial only when two nations are having absolute absolute differences in the cost of production
of the commodity in which they specialise.
ASSUMPTIONS:- 2*2*1 model 1 2 Complete specialisation 3 Perfect competition 4 Full employment
5 Constant returns to scale 6 No transportation cost 7 Perfect mobility of factors within the nation but not outside the nation.
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