ABSOLUTE ADVANTAGE THEORY: ORIGIN

The trade theory that originally shown significance of specialization underway and division of
labor depends on the possibility of theory of absolute advantage which is grown first by Adam
Smith in quite a while renowned book The Wealth of Nations distributed in 1776. Smith
contended that it was unimaginable for all countries to become rich at the same time by
following mercantilism in light of the fact that the fare of one country is another country's
import and rather expressed that all countries would pick up all the while on the off chance that
they rehearsed international commerce and had practical experience in understanding with
their absolute advantage. Smith likewise expressed that the abundance of countries relies on
the merchandise and enterprises accessible to their residents, instead of their gold stores.
While there are potential increases from trade with absolute advantage, the additions may not
be commonly gainful. Comparative advantage centers around the scope of conceivable
commonly gainful trades.
ASUMPTION
ABSOLUTE ADVANTAGE THEORY
1. Trade is between two countries
2. Just two commodities are traded
3. International commerce exists between the countries
4. The main component of cost of creation is labor

LIMITATIONS
ABSOLUTE ADVANTAGE THEORY:
1. No absolute advantages for some countries
2. Country size varries
3. Country by country contrasts in specializations
4. Manages labor just and disregards different components of creation
5. Dismissed Transport cost
6. Theory depends on a supposition that Exchange rates are steady and fixed.
7. It likewise accept that labor can switch between items effectively and they will work with
same effectiveness which as a general rule can't occur.