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Nikolai Rovneiko ECOI0008 Modern World Economy I Wednesday, 28 November 2001 Word Count: 977 'All countries gain from trade'. What is the basis of this orthodox economics conclusion? Do you agree? Why or why not? To fully understand this concept it if first necessary to find out where it came from. The main economic theory behind this argument is that of comparative advantage. It is also necessary to understand the absolute advantage theory. Both Adam Smith brought these theories forward but David Ricardo developed them in the early part of the 19th century to better fit the modern world. In this essay I will try to show how countries benefit from trade and why sometimes trade is not advantageous. The absolute advantage theory can be illustrated using the following example. Hours/unit Bulgaria Morocco Watches 10 200 Phone 300 50 We must assume that each country has 6000 hours of labour and that they divide this labour equally between the two goods. So the...

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