Which of the following is true of the absolute advantage theory of international trade?
A) It emphasizes relative advantage in one economic activity that one nation enjoys in comparison with other nations.
B) It divides the countries of the world into three categories based on innovation.
C) It advocates extensive government intervention in international trade.
D) It was the first theory that advocated free trade.

Question

Which of the following is true of the absolute advantage theory of international trade? 
A) It emphasizes relative advantage in one economic activity that one nation enjoys in comparison with other nations. 
B) It divides the countries of the world into three categories based on innovation. 
C) It advocates extensive government intervention in international trade. 
D) It was the first theory that advocated free trade.

Quizplus · Accepted Answer

The absolute advantage theory, developed by Adam Smith, posits that a country should export goods in which it has an absolute advantage (i.e., it can produce more efficiently than other countries) and import goods in which it has an absolute disadvantage. This theory was among the first to advocate for free trade based on the efficiency of production.

Which of the Following Is True of the Absolute Advantage