In Ricardian theory of comparative advantage, what happens if two countries, A and B, specialize in the production of goods where they have a comparative advantage but one country also has an absolute advantage in both goods?
1
Absolute advantage leads to market failure, and neither country should trade as it would worsen both economies.
2
The country with an absolute advantage in both goods should refuse to trade, as it would make them worse off.
3
The country with the absolute advantage in both goods should dominate the market, rendering the other country's participation irrelevant.
4
Both countries will still benefit from trade because comparative advantage determines mutual gains, irrespective of absolute advantages.