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Question

The theory of Absolute Cost Advantage was given by :

This question was previously asked in
MH SET 2021 Paper 2 Mathematical Science Question Paper (26-Sep-2021)
The correct answer is

Adam Smith

The theory of absolute cost advantage was set out by Adam Smith in The Wealth of Nations (1776). It states that a country should specialise in and export the goods it can produce with fewer resources (at a lower absolute cost) than its trading partner, and import goods that the partner produces more cheaply. Both countries then gain from the international division of labour.

David Ricardo extended this idea in 1817 into the theory of comparative cost advantage, showing that trade is beneficial even when one country is absolutely more efficient in every good. Eli Heckscher (with Bertil Ohlin) gave the factor-endowment theory, which explains trade through relative factor abundance. Paul Krugman is associated with the new trade theory based on economies of scale and product differentiation. None of them originated the absolute cost advantage theory.

Adam Smith option is correct.

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