Adam Smith's Theory of Absolute Advantage

Vocabulary practice flashcards covering Adam Smith's Theory of Absolute Advantage, technological revolutions, labor productivity, and the numerical model of trade specialization and exchange.

Theory of Absolute Advantage

The economic theory developed by Adam Smith proposing that a nation should specialize in producing goods where it possesses specific advantages and import goods where it lacks advantages.

State Regulation in International Trade (Smith's View)

Adam Smith's position that the volume, structure, and direction of international trade should not be regulated or controlled by the state.

First Technical-Technological Revolution

The historical era characterized by the creation of the steam engine, establishing the foundation of industrial production in England.

Second Technical-Technological Revolution

The historical period defined by the invention of the "Jenny" (Џени) spinning/weaving machine, which triggered the rapid rise of England's textile industry.

Textile Market Crisis in England

A commercial bottleneck where England's domestic market became too small to absorb its textile output, while European mercantilist states simultaneously blocked the importation of cheap English fabrics.

Living Labor (Живиот труд)

In Adam Smith's theoretical framework, the primary creator of all new economic value and material wealth, whose productivity determines a nation's absolute advantage.

Pre-Specialization Productivity (Two-Country Model)

The initial production state where Country A produces $10$ units of wheat and $2$ units of cloth, while Country B produces $2$ units of wheat and $5$ units of cloth for the same working hours.

Country A's Absolute Advantage

A condition in the two-country model where Country A achieves $5$ times higher productivity in wheat production ($10$ units vs. $2$ units) compared to Country B.

Country B's Absolute Advantage

A condition in the two-country model where Country B is $2.5$ times more productive in cloth production ($5$ units vs. $2$ units) compared to Country A.

Post-Specialization Total Production

The output achieved when Country A produces exclusively wheat ($20$ units) and Country B produces exclusively cloth ($10$ units), raising international output by $8$ units of wheat and $3$ units of cloth.

Liberal Regime of International Trade

An unrestricted trade system where exchanging surplus specialized goods increases overall welfare, lowers prices, and improves the fulfillment of needs for food and clothing in both participating countries.

Price Equalization

The inevitable economic outcome of production specialization and open trade where the prices of traded products equalize across participating countries.

Post-Trade Market Equilibrium (Table 1-3)

The final distribution after trading specialized surpluses, leaving both Country A and Country B with $10$ units of wheat and $5$ units of cloth each.