Adam Smith is known as the father of modern economics, and he believed in laissez-faire capitalism. According to him, the market forces of supply and demand should determine the direction, volume, and composition of international trade, not government controls. He also suggested that nations should specialize in producing goods and services in which they have a comparative advantage.

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Adam Smith Claimed

Question 43

Multiple Choice

Adam Smith claimed:

A) that governments,not market forces,should determine the directions,volume,and composition of international trade.
B) a nation could trade advantageously if it had a comparative advantage.
C) that market forces,not government controls,should determine direction,volume,and the composition of international trade.
D) that customers' tastes are affected by income levels.
E) that a nation should always specialize in producing what the government espouses without considering any absolute advantage it may have.

Correct Answer: