Question

In his theory of absolute advantage, what did adam smith say should be the determinant of what a country imports and what it exports?.

Answer 1

In his theory of absolute advantage, Adam Smith maintained that a nation's imports and exports should be decided by the invisible hand of the market mechanism as opposed to governmental action.

In his book The Wealth of Nations from the 18th century, economist Adam Smith introduced the idea of absolute advantage to explain how nations might profit from trade by specializing in manufacturing and exporting the things that they can manufacture more successfully than other nations. Absolute winners might choose to focus on manufacturing and selling a particular commodity or service, and then use the money they make to buy goods and services from other nations.

The rationale for why it is advantageous for people, companies, and nations to trade with one another is based on absolute advantage. Each has a distinct edge in manufacturing certain items and services, therefore the exchange will be advantageous to both parties.

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