Author Question: Explain how the theory of absolute advantage conflicts with the theory of mercantilism. What will ... (Read 91 times)

WWatsford · **on:** Jul 7, 2018

Explain how the theory of absolute advantage conflicts with the theory of mercantilism.

What will be an ideal response?

Question 2

Which of the following most likely supports Azoo government's decision to award the project bid to Contractor A?

A) Azoo leaders want immediate ownership of the public projects.
B) Azoo leaders want long-term help with operation of the subway.
C) Azoo lacks qualified workers to maintain public works projects.
D) Azoo lacks the financial resources to purchase large machinery.

CAPTAINAMERICA · **Reply #1 on:** Jul 7, 2018

Answer to Question 1

The theory of mercantilism conflicts with another trade theory, the theory of absolute advantage. Scottish economist Adam Smith first put forth the trade theory of absolute advantage in 1776. The ability of a nation to produce a good more efficiently than any other nation is called an absolute advantage. In other words, a nation with an absolute advantage can produce a greater output of a good or service than other nations using the same amount of, or fewer, resources.
The theory of absolute advantage destroys the mercantilist idea that international trade is a zero-sum game. Instead, because there are gains to be had by both countries party to an exchange, international trade is a positive-sum game. The theory also calls into question the objective of national governments to acquire wealth through restrictive trade policies. It argues that nations should instead open their doors to trade so their people can obtain a greater quantity of goods more cheaply. The theory does not measure a nation's wealth by how much gold and silver it has on reserve but by the living standards of its people.

Answer to Question 2

A