Trade Theories Answers | Assignmenthippo Assessment Answer
Answer:
from exchange (Hanson 2012).
Absolute Advantage and Comparative Advantage trade theories and their limitations:
Absolute Advantage Trade Theory
Limitations of Absolute Advantage Trade Theory
• Account transportation cost is majorly involved in selling the goods and services in the international market. However, it is not considered in determining the absolute advantage of a country.
• The absolute advantage is determined by the assumption that the exchange rates are stable.
• It assumes that labor can easily switch between products. This is because, it assumes the labors will work with same efficiency.
Comparative Advantage Trade Theory
Limitations of Comparative Advantage Trade Theory
• It is based on a wrong assumption that the wages of the industries between two countries will not vary.
• Different goods have different demand elasticity. It can be supported by an example. Suppose, 'Country A' is specialized in producing jewelry and thus it is exported in order to import food from 'Country B'. In the tough economic times, when global demand may fall, 'Country A' might confront difficulties to trade jewelry products to import food.
Conclusion:
Reference List
Baldwin, R. and Robert-Nicoud, F., 2014. Trade-in-goods and trade-in-tasks: An integrating framework. Journal of International Economics, 92(1), pp.51-62.
Hanson, G.H., 2012. The rise of middle kingdoms: Emerging economies in global trade. The Journal of Economic Perspectives, 26(2), pp.41-63.
Markusen, J.R., 2013. Putting per-capita income back into trade theory.Journal of International Economics, 90(2), pp.255-265.
Seretis, S.A. and Tsaliki, P.V., 2015. Absolute Advantage and International Trade Evidence from Four Euro-zone Economies. Review of Radical Political Economics, p.0486613415603160.
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