Abstract

Adam Smith's absolute advantage theory as weel as David Ricardo compartive advantage state that international trade could be mutually beneficent for the countries that make trade in presence of absolute advantage of any good or at least if there is comparative advantage. By adding social indifference curves by country and production possibilities frontier inside an general equilibrium diagram which we call international Edgeworth box, we show that the former statement is true in the case in which both countries have roughly the same size and that have absolute advantage in the production of one good. Nevertheless, things get complicated when countries have comparative advantage, but no absolute. If we add a difference in the size of country, it is absolutely necessary to rethink the classical theory of international trade, since from the approach of pure theory, there are no elements that exist mutually beneficent interchange between countries.

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