Chapter 40: International Trade, Comparative and Absolute Advantage, and Trade Restrictions

Lindsay Oldenski

International trade, comparative and absolute advantage, and trade restrictions Economists disagree about many aspects of economic policy. However, few topics garner as much support in the field as the potential for free trade to make individuals and societies better off. At the same time, protests of World Trade Organization meetings and labor union opposition to free trade agreements continue to make headlines. This chapter presents the theory underlying the conclusion that trade makes people better off and discusses conditions under which certain individuals or groups may not share in these gains from trade. Empirical tests of trade theory are also discussed. This chapter is organized around the main theories, or models, of international trade. Each model seeks to explain certain aspects of the complex interactions between trading countries. Some models are more useful than others for answering certain questions. None tells the entire story, yet all capture important insights, and ...

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