According to Absolute Advantage theory, who should determine the scale and scope of economic activities?

According to Absolute Advantage theory, who should determine the scale and scope of economic activities?

• A. Governments
• B. The market's invisible hand
• C. International organizations
• D. Trade associations

Answer: (B)

The concept of Absolute Advantage, developed by economist Adam Smith, posits that a country should specialize in producing goods for which it has a greater efficiency compared to other countries. In this context, the term "invisible hand" refers to the self-regulating nature of the marketplace, where individual decisions by consumers and producers lead to the most efficient allocation of resources in an economy. When the market operates under the influence of the invisible hand, it is guided by individual actions and preferences, allowing supply and demand dynamics to determine the scale and scope of economic activities. Businesses respond to consumer signals, and resources are allocated to the production of goods and services where the economy can develop a comparative advantage. This idea emphasizes that market forces, rather than central authorities or organizations, are better suited to recognize and adjust to the changing needs and capabilities of different economic participants. Thus, the market's invisible hand plays a critical role in determining how much and what type of economic activities should be undertaken, favoring efficiency and innovation through competition and consumer preferences. This understanding contrasts with the roles of governments, international organizations, and trade associations, which may influence but do not directly determine the effective workings of market mechanisms.

The concept of Absolute Advantage, developed by economist Adam Smith, posits that a country should specialize in producing goods for which it has a greater efficiency compared to other countries. In this context, the term "invisible hand" refers to the self-regulating nature of the marketplace, where individual decisions by consumers and producers lead to the most efficient allocation of resources in an economy.

When the market operates under the influence of the invisible hand, it is guided by individual actions and preferences, allowing supply and demand dynamics to determine the scale and scope of economic activities. Businesses respond to consumer signals, and resources are allocated to the production of goods and services where the economy can develop a comparative advantage. This idea emphasizes that market forces, rather than central authorities or organizations, are better suited to recognize and adjust to the changing needs and capabilities of different economic participants.

Thus, the market's invisible hand plays a critical role in determining how much and what type of economic activities should be undertaken, favoring efficiency and innovation through competition and consumer preferences. This understanding contrasts with the roles of governments, international organizations, and trade associations, which may influence but do not directly determine the effective workings of market mechanisms.