商务英语综合教程课件杜凤秋 ISBN9787810788113 PPT international tradechap.22 the advantages of international trade.pptVIP

The Advantages of International Trade The Law of Absolute Advantage Adam Smith(1723-1790) was one of founder of classical economic school, also of the theory of specialization and international trade. He thought specialization might increase production efficiency and each country should specialize in producing those goods which it could produce cheaply and efficiently, then traded goods produced with great sacrifice with others. All trading countries may benefit through trade (theory of absolute advantage). He gave an example to show his theory. The Law of Absolute Advantage The two nations, England and Portugal, are both able to produce wine and textiles. England can produce 1 unit of textiles with 70 labors a year, whereas Portugal can produce with 110 labors. However, Portugal can produce 1 unit of wine with 80 labors to England’s 120 labors. If without trade between the two nations, England only can enjoy 1 unit of wine and 1 unit of textile, and the same to Portugal. The Law of Absolute Advantage Table 1 Absolute Advantage Textiles Labor needed Wine Labor needed unit a year unit a year England 1 70 1 120 Portugal 1 110 1 80 The Law of Absolute Advantage England would find trade advantageous: to produce 1 unit of wine, it needed 120 labors to give up textiles production, but with free trade it can specialize in textiles and exchange 1 unit of its output for 1 unit of wine. Portugal likewise gains: to produce both commodities, it must give up production of wine for textiles desired. Specialization improves the well-being of both counties. With trade, England would produce textiles and Portugal wine. Each nation has a clear absolute advantage; England can produce textiles more cheaply than wine, and Portugal can produce wi