Major Trade Theories

Sociological three paradigms, Symbolic Interactionism, Social conflict, and Structural functionalism are all evident in everyday life. These three theories are associated with the study of societies. Each of these three theories were shown in the movie, Trading Places, a american comedy made in 1983 that illustrates the advantages of different social classes by making a banker and a homeless person trade places. Before I start to analyse the movie to each theory, I will first start by explaining each theory for a definition and to have a better understanding.

In trade routes and otherwise greed led to violence. This was demonstrated through slavery, piracy, and control of ivory and opium. African slavery began from greed; Europeans needed labor to fuel their large trading productions and manufacturing of the traded goods. Mesoamerican slavery and destruction was caused by the Spanish conquistadors in their infamous quest for gold, god, and glory. Through greed the conquistadors decimated an entire civilization to obtain their gold. However the British and Dutch reaped many economic benefits of this perhaps even without knowledge of where their wealth had come from. Piracy, also fueled by greed, began as small bands, but eventually transformed into large companies of corporate raiders. The

18. __________ basic argument, articulated through the theory of absolute advantage, is that a country

Due to the differences between the countries in its profitable fundamentals; the International Trade occurs. The contracts between the countries consider as the primary driver of the global exchange. These contracts concluded on the basis of the countries beneficial elements and advantages. Each international trade between the countries depends on numerous focal points of this exchange process. The economics and producers effectiveness measured by absolute advantage for these economics/producers. For example; if the producer needs lesser amount of contributions/inputs to provide specific product, then this producer has an absolute advantage in producing

Absolute advantage is the ability to produce more than one product efficiently and at the lowest cost. Comparative advantage is the ability to specialize in producing one product at the lowest cost. Comparative advantage affects trade the most because with specializing in producing one product the companies must trade to receive other products. Comparative advantage also considers the opportunity of cost to produce one product verse the other.

Pretend for a moment that you are much better than your best friend at chopping pineapples and at waxing surfboards for tourists. Economically speaking, you are said to have the absolute advantage over your friend because you are better at both tasks.  An easy way to identify absolute advantage is to see who can produce the most of a good or who can do it in the fastest time as we see in this example.  Absolute advantage is when some individual, group, or country has the ability to produce a product more efficiently than another individual, group, or country.  

Now, say that you and your best friend opened a fruit and surf stand on the local beach. There are two tasks that need to be completed: waxing surfboards for the surfers who stop by and chopping pineapples for a refreshing snack for people at the beach. While you might be better at both jobs, you can still get the work done quicker if you each take on one of the tasks. The question is: who waxes the boards and who chops up the pineapples? Let’s say:

Nations trade with one another because it is mutually advantageous for both parties when one is more efficient at producing a certain good and at a lower cost, and the other is proficient at producing a different good or service more efficiently. This is based on Ricaro’s theory of comparative advantage.

There has been a dual view of trade since the time of the ancient Greeks. The two sides of these philosophers views are the recognition of the benefits of international exchange, but that there is concern that certain domestic industries would be harmed by foreign

International trade theory provides explanations for the pattern of international trade and the distribution of the gains from trade. The study of trade emerged in the era of mercantilism (approximately in 16th century) as a crude set of arguments about how a nation should trade. The theory of International Trade examines the reasons why different countries exchange their products, but in addition the aftermath that this process has, in the internal economy of a country involved in international trade. Adam Smith, in The Wealth of Nations in 1776, postulated that under free trade, each nation should specialize in producing those goods that it could produce most efficiently. Some of these would be exported to pay for the imports of goods that could be produced more efficiently elsewhere. Smith ridiculed the fear of trade by comparing nations to households. Since every household finds it worthwhile to produce only some of its needs and to buy others with products it can sell, the same should apply to nations. The theory of absolute advantage is based on the assumption that the nation is absolutely better (i.e., more efficient) at production of

Free trade is an important economic policy that has been brought to the forefront of debate. Arguments have varied from the potential harm it brings to specific groups of people, to the idea that free trade is extremely beneficial in the increasing of competition and improving the nationwide economy. Free trade is a policy that practices removing restrictions such as tariffs, taxes, and bans, allowing for free participation among all kinds of economies and producers. In other words, free trade is a way to “break down” economic barriers. Comparative advantage is a term often used to support the policy of free trade. The theory of comparative advantage displays that if trading partners produce where there is the lowest opportunity cost, then

Which is cost difference determines the patterns of international trade. Absolute advantage is trade benefits when each country is at least cost producer of one of the goods being traded. In the 1800s, David Ricardo developed the theory of comparative advantage to measure gains from trades. This theory is based on comparative advantage and it states each nation should specialize in production of those goods for which its relatively more efficient with a lower opportunity cost.

The country can maximize their wealth by putting the resources in the most competitive industries. Government created comparative advantage rather than free trade because now easier moves the production processes and the machines into countries that can produce more goods (Yeager & Tuereck, 1984). However, many countries now move to new trade theory suggests the ability firms to limit the number of competitors associated with economic scale (reduction of costs with a large scale of output) (Krugman, 1992). The comparative advantage occurs when two-way trade in identical products, it will useful where economic scale is important, but it will create problem with this model. As a result, government must intervene in international trade for protection to domestic firms (Krugman, 1990)

Absolute advantage is when a business, person or country is able to produce services or goods at a lower cost per unit than any other entity can produce that same unit (MacKenzie, 2010).

Economists use the term absolute advantage when comparing the productivity of one person, firm or nation with that of another. The producer that requires a smaller quantity of inputs to produce a good is said to have an absolute advantage in producing that good (Gans, King, & Mankiw, 1999).

The principle of comparative advantage provides a simplified theory explaining why free trade is possible, even when one country has an economic disadvantage. Both the Ricardian and Heckscher-Ohlin theories rely on fixed economic assumptions of constant return and perfect competition. However, intuitively the basic principle of business is to increase returns through innovation, improving processes and technology or increasing economies of scale. Organizations understand they control pricing and are price setters, rather than price takers as suggested by perfect competition (Krugman & Obstfeld, 2003). The idea of increasing returns and imperfect competition challenge the foundations of comparative advantage.