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gb14 - Absolute Advantage In 1776 English economist Adam...

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Absolute Advantage In 1776, English economist Adam Smith proposed the theory of absolute advantage, which proposes that all nations can benefit from free trade by specializing in producing the goods for which they are absolutely superior to other nations. For example, England is better than Portugal at producing wool, and Portugal is better than England at producing grapes. Therefore, England should produce wool, Portugal should produce grapes, and the two nations should trade. Adam Smith, who is considered the father of modern economics, was an advocate for free trade—the idea that market forces, not the government, should determine levels of worldwide trade. Smith argued that humans, looking out for their own best interest, will do what’s best for society, as if they were guided by an “invisible hand.” According to this laissez faire theory, government intervention is unnecessary and unwise. To illustrate the theory of absolute advantage, consider the
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