Match each theory or concept of international trade on the left with its corresponding principle or theoretical foundation on the right.
- Theory of Absolute AdvantagePioneered by Adam Smith; asserts a country should export goods it produces at lower total resource input than another country.
- Theory of Comparative AdvantageFormulated by David Ricardo; demonstrates trade is beneficial when a nation specializes in goods with lower relative opportunity cost.
- Opportunity Cost Approach to TradeIntroduced by Gottfried Haberler; reformulates classical trade theory using Production Possibility Curves rather than labor units alone.
- Limits of Mutually Beneficial Terms of TradeBounded strictly between the internal exchange ratios (opportunity cost ratios) of the two trading nations.
Answer
Theory of Absolute Advantage matches with Adam Smith's principle of lower total resource input; Theory of Comparative Advantage matches with David Ricardo's relative opportunity cost model; Opportunity Cost Approach matches with Gottfried Haberler's PPC reformulation; Limits of Mutually Beneficial Terms of Trade matches with the range bounded by domestic opportunity cost ratios.
Each trade theory is paired correctly with its seminal economist and core principle: Adam Smith with absolute resource efficiency, David Ricardo with relative opportunity cost, Gottfried Haberler with the PPC opportunity cost reformulation, and terms of trade bounds with internal domestic ratio limits.
Step-by-Step Solution
Key Concept
Foundational Theories and Principles of International Trade