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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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    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 ...

    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.