THE PRINCIPLE OF ABSOLUTE ADVANTAGE. The principle of absolute advantage was propounded by Adam Smith and it states that a country should specialize in the production of a commodity or commodities and services in which it has absolute advantage over other countries. According to Adam Smith, a country has an absolute advantage over other countries if it can produce a commodity or service which other countries cannot produce. Again, given the same unit of resources, a country h absolute advantages where she can produce two commodities concerned at the least cost
principle of absolute advantage as put forward by Adam Smith
The principle of absolute advantage is an economic theory that was first introduced by Adam Smith, a renowned economist, in his book “The Wealth of Nations” published in 1776. According to this principle, a country has an absolute advantage in the production of a good or service if it can produce more of it with the same amount of resources or produce the same amount with fewer resources compared to another country.
In other words, a country has an absolute advantage when it is more efficient in producing a particular good or service than another country. This efficiency is measured in terms of productivity, which is the amount of output produced per unit of input, such as labour, capital, or land.
The principle of absolute advantage suggests that countries should specialize in the production of goods or services in which they have an absolute advantage and then engage in trade with other countries. By doing so, both countries can benefit from trade and achieve higher levels of overall output and economic welfare.
For example, let’s consider two countries, A and B, and two goods, X and Y. If country A can produce more units of good X or produce the same amount of good X with fewer resources compared to country B, while country B can produce more units of good Y or produce the same amount of good Y with fewer resources compared to country A, then both countries can specialize in the production of the goods in which they have an absolute advantage. They can then trade with each other, exchanging the goods they produce more efficiently, and both countries can benefit from the trade.
in relation to this topic, note that the principle of absolute advance focuses on comparing the productivity of countries in the production of goods or services and does not take into account the opportunity costs or relative costs of producing those goods. Other theories, such as the theory of comparative advantages, delve deeper into the concept of opportunity costs and provide a more nuanced understanding of international trade patterns
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