According to the doctrine of Adam Smith, free trade is to best policy between two nations in the case of that trade between two countries is based on an absolute advantage. When one country is more efficient in producing one commodity but is less efficient in producing another commodity than other country, the gains from trade will be achieved for both countries through specializing in in the production of the commodity which has an absolute advantage, and exchange with other country for the commodity which hasn't an absolute advantage. (Salvatore, 2001, p35) The theory of absolute advantage does not take in to account the gains from trade between countries if one of the countries has absolute advantage over all lines of production.
David Ricardo (1817), in his theory of comparative advantage explained that specialization and …show more content…
In the Ricardian model, a country gains whenever it becomes completely specialized in the commodity which it has comparative advantage in it. All parties gain from trade in Ricardo. Thus, we could not be able to explain why some agents are against free trade and why there are barriers to trade. (Tamasiga, 2013, p11)
According to the Ricardian theory, the movement toward free trade generates an increasing of the welfare of both countries as specialization and trade will increase the set of consumption possibilities, compared with autarky system, and will increase in consumption of both commodities locally. These gains are described as improvements in the efficiency of production and consumption.
Moreover Free trade increases the efficiency of aggregate world production, as more of commodities are produced with the same number of workers. Free trade also raises aggregate consumption efficiency, which means that consumers have a more set of choices and prices available to them (Suranovic, 2012,
David Ricardo (1817), in his theory of comparative advantage explained that specialization and …show more content…
In the Ricardian model, a country gains whenever it becomes completely specialized in the commodity which it has comparative advantage in it. All parties gain from trade in Ricardo. Thus, we could not be able to explain why some agents are against free trade and why there are barriers to trade. (Tamasiga, 2013, p11)
According to the Ricardian theory, the movement toward free trade generates an increasing of the welfare of both countries as specialization and trade will increase the set of consumption possibilities, compared with autarky system, and will increase in consumption of both commodities locally. These gains are described as improvements in the efficiency of production and consumption.
Moreover Free trade increases the efficiency of aggregate world production, as more of commodities are produced with the same number of workers. Free trade also raises aggregate consumption efficiency, which means that consumers have a more set of choices and prices available to them (Suranovic, 2012,