Which theory of international trade was posited by Adam Smith?

Which theory of international trade was posited by Adam Smith?

• A. Comparative Advantage
• B. Absolute Advantage
• C. Factor Endowment Theory
• D. Strategic Trade Theory

Answer: (B)

Adam Smith introduced the concept of Absolute Advantage, which is the correct answer. This theory suggests that a country has an absolute advantage in producing a good if it can produce it more efficiently—using fewer resources—than another country. In other words, if one country can make a good more cheaply or with more efficiency than another, that country should specialize in the production of that good and trade with others. This specialization allows for increased levels of efficiency and productivity, ultimately benefiting all parties involved in international trade. Comparative Advantage, which is often confused with Smith's theory, was actually developed by David Ricardo and refers to the ability of a country to produce a good at a lower opportunity cost compared to another country. Factor Endowment Theory, proposed by economists like Heckscher and Ohlin, focuses on the factors of production that a country possesses and how this influences its trade. Strategic Trade Theory relates to government strategies to enhance a country's competitive position in certain industries through policies and support. Thus, the notion of Absolute Advantage, as articulated by Adam Smith, is integral in understanding the foundations of international trade, highlighting the importance of efficiency in production and the benefits of trading goods between nations based on those efficiencies.

Adam Smith introduced the concept of Absolute Advantage, which is the correct answer. This theory suggests that a country has an absolute advantage in producing a good if it can produce it more efficiently—using fewer resources—than another country. In other words, if one country can make a good more cheaply or with more efficiency than another, that country should specialize in the production of that good and trade with others. This specialization allows for increased levels of efficiency and productivity, ultimately benefiting all parties involved in international trade.

Comparative Advantage, which is often confused with Smith's theory, was actually developed by David Ricardo and refers to the ability of a country to produce a good at a lower opportunity cost compared to another country. Factor Endowment Theory, proposed by economists like Heckscher and Ohlin, focuses on the factors of production that a country possesses and how this influences its trade. Strategic Trade Theory relates to government strategies to enhance a country's competitive position in certain industries through policies and support.

Thus, the notion of Absolute Advantage, as articulated by Adam Smith, is integral in understanding the foundations of international trade, highlighting the importance of efficiency in production and the benefits of trading goods between nations based on those efficiencies.