Country a Can Produce Product X, but It Can Also

question 90

Multiple Choice

Country A can produce product X, but it can also buy it at a cheap rate from Country B. Which of the following courses of action is suitable in this situation according to Adam Smith's theory of absolute advantage?

• A) Country A should import product X from Country B and it should not attempt to produce it at home.
• B) Country A should partly import the product and produce it domestically.
• C) Country A should produce more of product X and should attempt to obtain an absolute advantage for the product.
• D) Country A should subsidize the production of product X to obtain an absolute advantage over Country B.

---

Definitions:

Domestic Corporation

A corporation that is registered and operates within its country of incorporation.

State of Incorporation

The specific state within a country where a corporation is registered to operate, abiding by its legal framework and benefiting from its corporate laws.

Franchisor

An entity that grants the right to operate a business under its trademark and brand name to another party, known as the franchisee.

Small Business Owner

An individual who owns and operates a business with a small number of employees and relatively lower volume of sales.