week 2 discussion notes - Differences Between Classical...

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Differences Between Classical Model of Trade and Neoclassical Model of Trade Classical Model of Trade: Trades along the lines of comparative advantage, also international trade leads to a higher standard of living for the countries involved. Problems with this model are: this model does not explain why differences in productivity level exist between countries; prediction that country will completely specialize in the production of exportable goods; and greatest gains from trade between countries with dissimilar technologies. Model has existed for over 200 years. According to the theory, international trade is a case of geographical speculation. Different countries have different set of resources. In this process, a country may have more of a resource. The abundance of a resource gives cost advantage in the production of a commodity. The cost advantage is the basic of specialization and international trade.
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