Adam Smith and Absolute Advantage

This section presents the theory of absolute advantage developed by Adam Smith. The chapter gives examples of entrepreneurs or farmers in one country engaging in activities whose products are sold to other countries. The chapter provides an overview of the main criteria for absolute advantage. This chapter explains in general terms the reasons for the emergence of international trade and international business in general. The chapter compares the concepts of absolute and comparative advantage.

Ex. 1‑4 5 Largest banana exporters are located in the same climate zone that determines banana yields

Keywords: export, climate

Ex. 1‑5 The 10 countries with the largest oil reserves are also oil importers

Keywords: oil, export, import

Ex. 1‑6 The divergence between the Mercantilist and Adam Smith views

Keywords: zero-sum game, specialisation, mercantilism

Ex. 1‑7 Absolute advantage and comparative advantage

Keywords: absolute advantage, comparative advantage, Adam Smith

Ex. 1‑8 Adam Smith’s “Wealth of Nations” period in the context of other significant events

Keywords: Wealth of Nations, French revolution, Anglo-Spanish War, Vasco de Gama, Columbus

Adam Smith published his book The Wealth of Nations in 1776. Inspired by nearly two centuries of mercantilist philosophy, Adam Smith (1723-1790) sought more explanations for why nations should trade with each other. He also tried to find systematic reasons why some countries sell more of one type of commodity and others another.

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