Which of the following ideas is closely linked to the theory of absolute advantage?
A) All international trade must be closely regulated by governments.
B) Free market forces should determine how much to trade with minimal government intervention.
C) Governments should actively protect domestic industries from imports and vigorously promote exports.
D) Nations should specialize in economic activities in which they have comparative advantage.

Question

Which of the following ideas is closely linked to the theory of absolute advantage? 
A) All international trade must be closely regulated by governments. 
B) Free market forces should determine how much to trade with minimal government intervention. 
C) Governments should actively protect domestic industries from imports and vigorously promote exports. 
D) Nations should specialize in economic activities in which they have comparative advantage.

Quizplus · Accepted Answer

The theory of absolute advantage, developed by Adam Smith, suggests that countries should specialize in the production of goods and services they can produce most efficiently, with minimal government intervention, allowing free market forces to determine trade volumes. This contrasts with protectionist policies or the theory of comparative advantage, which involves specializing in goods with the lowest opportunity cost.

Which of the Following Ideas Is Closely Linked to the Theory