Adam Smith said, "It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy. The tailor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a tailor." Which of the following concepts best illustrates what Smith wanted to convey in this statement?
A) comparative advantage
B) incentives matter
C) scarcity
D) production possibilities frontier

Question

Quizplus · Accepted Answer

Smith is referring to the concept of comparative advantage, which suggests that individuals and countries should specialize in producing goods and services that they can produce at a lower opportunity cost than others, and trade with others who can produce other goods and services more efficiently. In this case, the tailor specializes in making clothes and buys shoes from the shoemaker, who specializes in making shoes. This way, both the tailor and the shoemaker can benefit from each other's comparative advantage and end up with more goods at a lower cost.

Adam Smith Said, "It Is the Maxim of Every Prudent