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Global Trade: Principal Theories

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What are three principal trade theories? How do these theories apply to the pattern of global trade? Are they still useful in our understanding of the dynamics of today?

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Solution Summary

The solution lists the three principal trade theories followed by a paragraph of explanation of each. Conclusions are reached in evaluating each theory.

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Dear Student,

The three principal trade theories are
1. Theory of absolute advantage
2. Theory of comparative advantage
3. Classical trade theory

According to theory of absolute advantage, a country has an absolute advantage over the others if it is able to produce more of a product or service with the same amount of resources or the same amount of a good or service with fewer resources. This occurs because of the existence of better resources for producing a particular product or service.

According ...

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