Explain why Adam Smith’s theory of absolute advantage provides a more rational explanation for International trade than Mercantilism. s
July 14, 2020 Comments Off on Explain why Adam Smith’s theory of absolute advantage provides a more rational explanation for International trade than Mercantilism. s Uncategorized Assignment-help
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1. Explain why Adam Smith’s theory of absolute advantage provides a more rational explanation for International trade than Mercantilism. Thereafter discuss why the Ricardian theory of comparative advantage improves upon the justification for free trade provided by Smith.2. Assume that China and Germany produce 2 goods, shoes and cars. There are 2 factors of production, labour and capital. The production of cars is relatively capital intensive and the production of shoes is relatively labour intensive. Also assume that China is a labour abundant country relative to Germany and that Germany is capital abundant relative to China. With reference to the Heckscher-Ohlin theory, explain the implications of the above conditions for international trade between the two countries, and the effects it would have on the two industries and on the factor prices paid in the two countries