Explain Smith's theory of absolute advantage.

What will be an ideal response?

Answer: Adam Smith's Theory of Absolute Advantage states that a country should only produce goods that they have an absolute advantage in. This means that the country can produce the highest quality and highest amount of the good they choose to specialize in for the lowest price, which in turn causes the highest amount of revenue and economic growth. This also promotes free trade with other countries around the world because countries will have to trade to gain products needed to survive since every country cannot specialize in every good. It also creates competition between two countries who are trying to specialize in the same good, which stimulated innovation and entrepreneurship.