International trade is based on the theory of absolute advantage.

Question

Quizplus · Accepted Answer

International trade is based on the theory of comparative advantage, not absolute advantage. The theory of comparative advantage suggests that each country should focus on producing and exporting the goods and services in which it has the lowest opportunity cost and importing the goods and services in which it has a higher opportunity cost. This leads to a more efficient allocation of resources and benefits all countries involved in the trade.

International Trade Is Based on the Theory of Absolute Advantage