Which of the following theories argues that countries should specialise in the production of those goods they produce most efficiently, and buy goods that they produce less efficiently from other countries (even if this means buying goods from other countries that they could produce more efficiently at home)

Question

BlackTom AI · Accepted Answer

Let’s parse the core idea in the question. The statement describes a country focusing on producing goods it can make most efficiently and importing goods it makes less efficiently, even if it could produce everything more efficiently at home. This is the classic description of comparative advantage, which emphasizes relative efficiency differences and benefits from trade even when one country holds an absolute advantage in all goods.
Option a: Mercantilism. This school centers on accumulating wealth through a positive trade balance, often via tariffs and protectionism, rather than specializing based on efficiency differences. It does not capture the idea of producing where you are relatively more efficient and trading for others.
Option b: New trade theory. This approach highlights the role of economies of scale, network effects, and barriers to entry in shaping trade patterns, not the specific principle of producing goods based on comparative efficiency differences across countries.
Option c: Absolute advantage. This concept says a country should produce goods in which it has an absolute edge (it can produce more efficiently than others). While related, it doesn’t account for the scenario where a country may still benefit from trading even if it could produce that good more efficiently at home, which is the heart of comparative advantage described in the prompt.
Option d: Comparative advantage. This option matches the described idea: specializing in goods with the greatest relative efficiency advantage and importing others, regardless of absolute production capabilities. It explains why countries trade and how mutual gains arise from differing opportunity costs.
In summary, the statement aligns with the theory of comparative advantage because it centers on relative efficiency and the benefits of trade based on opportunity costs rather than absolute productivity alone.

MGF2351 - S2 2025 Week 5 Quiz

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