Pros and Cons of Classical Theory

Question 1

List the pros of Classical Theory

Answer 1

1) Can give predictions about basis products, like commodities i.e. oil.
2) Can explain how companies and individuals can benefit from arbitrage (buying in a market providing the same product at a lower price).
3) Can explain the benefits of free trade (the more free trade the bigger the win win).

Question 2

List the cons of Classical Theory

Answer 2

1) Can’t explain intra-industry trade (UK exporting cars to Germany, and Germany exports cars to the UK).
2) No clear explanation as to why firms engage in FDI
3) Cannot explain importing, exporting or FDI combinations by a firm.