➡️ Absolute advantage theory assumes that countries have unlimited resources and ignores the cost of production. This means that it does not take into account the cost of production, which can be a major factor in determining the comparative advantage of a country.
➡️ Comparative advantage theory assumes that countries have perfect knowledge of their own resources and ignores the fact that countries may not have perfect information about the resources of other countries. This means that it does not take into account the possibility of countries having an advantage in certain resources that they may not be aware of.
➡️ Both theories assume that countries are only interested in producing goods and services for their own consumption, ignoring the potential for international trade. This means that they do not take into account the potential for countries to benefit from trading with each other.
What is protectionism and how does it impact international trade?
Protectionism refers to the economic policy of restricting imports from other countries through tariffs, quotas, and other trade barriers. The aim of protectionism is to protect domestic industries from foreign competition and promote local production. However, protectionism can lead to higher prices for consumers, reduced competition, and retaliation from other countries, which can harm international trade relations.
What are the advantages and disadvantages of protectionism?
The advantages of protectionism include the protection of domestic industries, the creation of jobs, and the reduction of the trade deficit. However, the disadvantages of protectionism include higher prices for consumers, reduced competition, and retaliation from other countries, which can harm international trade relations. Protectionism can also lead to inefficiencies in the economy, as domestic industries may not be as competitive as foreign ones.
How does protectionism affect developing countries?
Protectionism can have a negative impact on developing countries, as it can limit their access to international markets and reduce their ability to compete with developed countries. Developing countries often rely on exports to generate income and promote economic growth, and protectionism can limit their ability to do so. Additionally, protectionism can lead to higher prices for imported goods, which can harm consumers in developing countries who may not have the same level of purchasing power as consumers in developed countries.