MNG4801
ASSIGNMENT 2
DUE DATE: 30 AUGUST 2026
,TABLE OF CONTENTS
Section Page
Introduction 2
Question 1: Absolute Advantage and Developing Country Trade
3
Challenges
Question 2: The Impact of War on International Trade 9
Question 3: Unequal Power and the Failure of Free Trade 15
Question 4: Trade Policy Instruments and Consumer Benefits 21
Conclusion 30
Reference List 31
1
,INTRODUCTION
International trade is an important part of the world economy. However, the idea of free
trade does not always work well in real life because countries have different political and
economic interests. This assignment looks at four important areas of international
business: how developing countries can use the theory of absolute advantage, how
wars and political conflicts affect trade, why free trade has limits when countries do not
have equal power, and whether trade policies really benefit consumers. Using Hill's
(2023) International Business: Competing in the Global Marketplace and other
academic sources, this assignment shows that although trade theories help us
understand global business, the way they work in practice is often affected by unequal
power, political problems, and the different interests of countries and other groups.
2
, QUESTION 1: ABSOLUTE ADVANTAGE AND DEVELOPING COUNTRY TRADE
CHALLENGES
1.1 Introduction
Adam Smith introduced the theory of absolute advantage in his book The Wealth of
Nations (1776). He explained that countries should focus on producing goods they can
make better and more efficiently than other countries. When trading these goods, all
countries can benefit instead of competing against each other. This idea is different
from mercantilism, which believed that one country could only gain if another country
lost (Hill, 2023, p. 167). This section discusses a developing country that has an
absolute advantage and explains the challenges it faces when trading with developed
countries.
1.2 The Theory of Absolute Advantage Defined
A country possesses an absolute advantage in the production of a product when it is
more efficient than any other country at producing it (Hill, 2023, p. 167). Smith
demonstrated that by specialising in production where each has an absolute advantage,
both countries benefit from trade. Hill (2023, p. 168) illustrates this through the classic
example of Ghana and South Korea, where Ghana's absolute advantage in cocoa
production and South Korea's absolute advantage in rice production result in increased
total output and consumption for both nations when they specialise and trade.
The theory rests on the principle that countries should never produce goods at home
that they can buy at lower cost from other countries (Hill, 2023, p. 168). This represents
a direct repudiation of mercantilism, which viewed trade as a zero-sum game where one
country's gain necessarily came at another's expense (Hill, 2023, p. 166). The gains
from trade arise because international trade allows a country to specialise in the
3
ASSIGNMENT 2
DUE DATE: 30 AUGUST 2026
,TABLE OF CONTENTS
Section Page
Introduction 2
Question 1: Absolute Advantage and Developing Country Trade
3
Challenges
Question 2: The Impact of War on International Trade 9
Question 3: Unequal Power and the Failure of Free Trade 15
Question 4: Trade Policy Instruments and Consumer Benefits 21
Conclusion 30
Reference List 31
1
,INTRODUCTION
International trade is an important part of the world economy. However, the idea of free
trade does not always work well in real life because countries have different political and
economic interests. This assignment looks at four important areas of international
business: how developing countries can use the theory of absolute advantage, how
wars and political conflicts affect trade, why free trade has limits when countries do not
have equal power, and whether trade policies really benefit consumers. Using Hill's
(2023) International Business: Competing in the Global Marketplace and other
academic sources, this assignment shows that although trade theories help us
understand global business, the way they work in practice is often affected by unequal
power, political problems, and the different interests of countries and other groups.
2
, QUESTION 1: ABSOLUTE ADVANTAGE AND DEVELOPING COUNTRY TRADE
CHALLENGES
1.1 Introduction
Adam Smith introduced the theory of absolute advantage in his book The Wealth of
Nations (1776). He explained that countries should focus on producing goods they can
make better and more efficiently than other countries. When trading these goods, all
countries can benefit instead of competing against each other. This idea is different
from mercantilism, which believed that one country could only gain if another country
lost (Hill, 2023, p. 167). This section discusses a developing country that has an
absolute advantage and explains the challenges it faces when trading with developed
countries.
1.2 The Theory of Absolute Advantage Defined
A country possesses an absolute advantage in the production of a product when it is
more efficient than any other country at producing it (Hill, 2023, p. 167). Smith
demonstrated that by specialising in production where each has an absolute advantage,
both countries benefit from trade. Hill (2023, p. 168) illustrates this through the classic
example of Ghana and South Korea, where Ghana's absolute advantage in cocoa
production and South Korea's absolute advantage in rice production result in increased
total output and consumption for both nations when they specialise and trade.
The theory rests on the principle that countries should never produce goods at home
that they can buy at lower cost from other countries (Hill, 2023, p. 168). This represents
a direct repudiation of mercantilism, which viewed trade as a zero-sum game where one
country's gain necessarily came at another's expense (Hill, 2023, p. 166). The gains
from trade arise because international trade allows a country to specialise in the
3
