The Scottish economist Adam Smith
developed 'Theory of Absolute Advantage' in 1776. According to this
theory-"A country that has an absolute advantage, produces greater output
of a good or service than other countries using the same amount of
resources."
Example: 10 hours production
|
Production
|
Bangladesh
|
China
|
|
|
|
|
|
Rice
|
70
|
100
|
|
|
|
|
|
Jute
|
80
|
50
|
|
|
|
|
From the table we
can see that China is more productive in producing rice. Bangladesh is more
productive in producing jute. So, China & Bangladesh will produce only rice
& jute respectively. So, total production will be:
Bangladesh(Jute):-(80x2)=160TMT
International trade: If 10 TMT jute=15 TMT rice is exchanged, then:-
|
Production
|
Bangladesh
|
China
|
|
|
|
|
|
Rice
|
135
|
65
|
|
|
|
|
|
Jute
|
70
|
90
|
|
|
|
|
