Friday, March 27, 2009

Adam smith and the invisible hand (4)

.that gains from trade can occur over a wide range of barter price.smith,argument was especially significant at the time because it indicated that both countries could benefit from trade and that trade was not a zero-sum game as the mercantilists had believed.the fact that trade was mutually beneficial and was a positive -sum game was a powerful argument for expanding trade and reducing the many trade controls that characterized the mercantilist period .smith saw the source of these absolute advantages as the unique set of natural resources (including climate ) and abilities that characterized a particular nation .he also recognized that certain advantages could be acquired through the accumulation transfer ,and adaption of skills and technology .
smith is ideas were crucial for the early development of Classical thought and for altering the view of the potential gains from international trade .David Ricardo then expanded upon Smith is concepts and demonstrated that the potential gains from trade were far greater than Adam smith had envisioned in his concept of absolute advantage .

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