Explain the modern theory of international trade. How is it an improvement over the classical theory?



Explain the modern theory of international trade. How is it an improvement over the classical theory..

Answer / Gautam Sinha

The modern theory of international trade, also known as the New Trade Theory, is an improvement over the classical theory. Unlike the classical theory which focuses on comparative advantage and absolute advantage, the modern theory emphasizes the role of product differentiation, economies of scale, and imperfect competition in shaping international trade patterns.

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