Trade Theories

Trade theories explain why countries engage in international trade and how they benefit. Classical theories like Absolute Advantage suggest countries should produce goods they can make most efficiently. Comparative Advantage shows countries should specialize in products where they have the smallest disadvantage, even if they’re less efficient overall. Modern theories consider factors like technology, resources, and economies of scale, explaining why countries trade different goods and how trade impacts economies. Overall, these theories help us understand the benefits of trade and how nations can maximize their economic growth by specializing and exchanging goods.