In economics, the principle of absolute advantage refers to the ability of a party (an individual, or firm, or
country) to produce a greater quantity of a good, product, or service than competitors, using the same
amount of resources. Adam Smith first described the principle of absolute advantage in the context of
international trade, using labor as the only input. Since absolute advantage is determined by a simple
comparison of labor productiveness, it is possible for a party to have no absolute advantage in anything in
that case, according to the theory of absolute advantage, no trade will occur with the other party. It can be
contrasted with the concept of comparative advantage which refers to the ability to produce specific
goods at a lower opportunity cost.
1. Adam Smith contribution to International Trade.
2. Adam Smith (5 June 1723 OS (16 June 1723 NS) – 17 July 1790) was a Scottish moral philosopher
and a pioneer of political economy. One of the key figures of the Scottish Enlightenment,[1]Adam Smith
is best known for two classic works: The Theory of Moral Sentiments (1759), and An Inquiry into the
Nature and Causes of the Wealth of Nations (1776). The latter, usually abbreviated as The Wealth of
Nations, is considered his magnum opus and the first modern work of economics. Smith is cited as the
"father of modern economics" and is still among the most influential thinkers in the field of economics
today
3. Adam Smith and David Hume were the founding fathers of anti-mercantilist thought. A number of
scholars found important flaws with mercantilism long before Adam Smith developed an ideology that
could fully replace it.
4. Adam smith “wealth of nations” was an attack on merchantilism.
5. •laissez-faire capitalism •Division of labour •Invisible hand Absolute advantage theory was derived
from this book “wealth of nations”
6. Adam Smith's Absolute Advantage Theory says that one country would have an absolute advantage
over the other if it can produce same amount of goods with fewer resources. This is then the ability of a
company or a country to produce more goods than its competitors using same or less resources. The
principle was described by Adam Smith in the context of international trade.
7. The main concept of absolute advantage is generally attributed to Adam Smith for his 1776 publication
An Inquiry into the Nature and Causes of the Wealth of Nations in which he countered mercantilist ideas.
Smith argued that it was impossible for all nations to become rich simultaneously by following
mercantilism because the export of one nation is another nation’s import and instead stated that all nations
would gain simultaneously if they practiced free trade and specialized in accordance with their absolute
advantage. Smith also stated that the wealth of nations depends upon the goods and services available to
their citizens, rather than their gold reserves. While there are possible gains from trade with absolute
advantage, the gains may not be mutually beneficial. Comparative advantage focuses on the range of
possible mutually beneficial exchange
8. The theory of absolute advantage was a step forward in explaining the need for countries to specialize
in certain products and engage in international trade to increase their productivity. The theory was
however not helpful to those countries who did not have an absolute advantage in certain goods. Such
countries would, according to the theory, not gain any benefit from specializing.
Ricaordo Theory of trade
The theory of comparative advantage is an economic theory about the work gains from trade for
individuals, firms, or nations that arise from differences in their factor endowments or technological
progress.In an economic model, an agent has a comparative advantage over another in producing a
