Question

The trading principle formulated by Adam Smith maintained thata. differences in resource endowments determine comparative advantage.b. absolute cost differences determine the immediate basis for trade.c. differences in income levels govern world trade patterns.d. international prices are determined from the demand side of the market.

Answer 1

Answer:

B.

Explanation:

Adam Smith´s absolute advantage theory says that one country would have an absolute advantage over the other if it can produce same amount of goods with fewer resources. This is then the ability of a company or country to produce more goods than its competitors using same or less resources. The principle was described by Adam Smith in the context of international trade.

Smith argued that it was impossible for all nations to become rich simultaneously by following mercantilism because the export of one nation is the another nation´s import and instead stated that all nations would gain simultaneously if they practiced free trade and specialized in accordance with their absolut advantage.