BUSI 4205 Chapter Notes - Chapter 5: Portfolio Investment, Factor Endowment, Absolute Advantage
26 May 2015
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Chapter 5 the economic and technological environments. International trade theory typically begins with a discussion of adam smith"s theory of absolute advantage. Smith recognized that countries produce products for which they have a cost or resource advantage. Adam smith and absolute advantage: certain countries can outperform other countries because they incur lower costs, or employ resources more efficiently at the same cost, relative to them. All products produced in excess of domestic needs would be traded to others for products canadians desired but do not, or could not, produce themselves. According to smith, we would all be better off trading our surplus stocks with others for their surpluses. In other words, what is the opportunity cost of producing wheat in canada (for example), as opposed to asking, What does it cost a canadian compared to an argentine to produce a unit of wheat? .
