In Modern Theory, the gains from trade are divided into the gains from production (specialization) and the ones from consumption (exchange). Both consumers and producers gain from international trade by consuming more and producing more than the pre-trade level. Whereas the classical theories were based on static advantages, theory nowadays assumes dynamic comparative advantage and bases on the determination of equilibria. The optimal allocation of trade versus production therefore can be found by
Scottish Economist Adam Smith (1723-1790), Absolute Advantage is defined as a country’s proficiency to produce better in a certain good by using a lower cost than another nation. （Absolute Advantage Versus Comparative Advantage, 2016）The lower cost of a production in absolute advantage are not a fixed cost ,it may be flexible by the trade. (Adam Smith’s theory of absolute advantage and the use of doxography in the history of economics, 2016) In the theory of absolute advantage, a certain good referred
MERCANTILISM Mercantilism was another theory of economics. It was prevailing in the Europe during the sixteenth to the eighteenth century. This theory mainly encouraged government guidelines of the country 's economy. The main purpose was to enlarging the power of the state at the cost of the opposing national powers. It was the economic equivalent of political tyranny or absolute realms. The term Mercantilism mainly includes a national economic policy for amassing monetary capitals through a positive
classical theories are used to explain the macroeconomics factors for a firm to internationalize its assets. 1.1.1. Absolute cost advantages The theory of absolute cost advantages is based on Adam Smith 's (1776) new theory of international trade. He believed that goods should be produced where the cost of labor is the lowest. Therefore, a company should produce when it cost less in order to export in an economy where labor costs are expensive. The division of labor is the key word to this theory. A company
Its major developers were Adam Smith, David Ricardo, J.S.Mill and Jean Baptiste Say. This theory is based on the factor that markets can regulate themselves without intervene of government. According to these economists trade is not a zero-sum game because both sides can benefited when they engaged in international trade. Mercantilism failed to understand the benefit of international trade as well as absolute and comparative advantages of the nations. Then the Adam Smith, David Hume and David
let things take their natural course’ (Malthus, 1836: 16)). His theory of gluts involoved a rejection of
more in favouring investment as the best way for surplus utilization since in the long run it can facilitate expansion in capital formation, hence ‘wealth of a nation’ (Felderer and Homburg 1992: 15). The classical theory begins with the theory of absolute advantage which was advanced by Adam Smith. Smith advocates for a free market in the absence of the government regulations for the perfect
observe all theories, they are like parts of Elephants body. Each theory explains one aspect of truth. Adam smith explaining the absolute advantage through division of labour.Ricardo explaining the aspect of relative profit drawn out of trade, the comparative cost advantage though the concept of opportunity cost. Hecksher-ohlin introducing the concept of factor specialization, how each factor builds onto give us a specific
Historically, economists made the effort to advance several theories that were used in explaining the trend of international trade. The theories provided impute to other readers in understanding how the global trade was involved. Review of the literature concerning Germany-Tanzania trade has not yet been done by a lot of researchers. The study acknowledged that there are other theoretical ideas of economist that presented information regarding the nature and source of international trade between
major founders and contributors to the concept of classical economics include Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus and John Stuart Mill. “The Wealth of Nations” written by Adam Smith in the year 1776 marks the commencement of the era of classical economics. Classical economists do stress for unregulated markets and claims that free markets will regulate themselves in absence of state intervention. Adam Smith introduces us to the term “invisible