Which of the Following Is a Correct Inference from Adam

question 15

Multiple Choice

Which of the following is a correct inference from Adam Smith's theory of absolute advantage?

• A) There is no virtue in a large volume of trade. Rather, policies should be implemented to maximize exports and minimize imports.
• B) It is in a country's best interests to maintain a trade surplus, to export more than it imports.
• C) Trade is a zero-sum game in which a gain by one country results in a loss by another.
• D) A country that has an absolute advantage in the production of all goods might derive no benefits from international trade.
• E) Trade is a positive-sum game in which all countries that participate realize economic gains.

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Definitions:

Temporary Surplus

A short-term situation where the supply of a product or service exceeds its demand, often leading to price reductions.

Permanent Surplus

A situation where a country consistently exports more goods and services than it imports, leading to a positive balance of trade over time.

Equilibrium Price

The price at which the quantity of a product or service demanded by consumers matches the quantity supplied by producers, leading to a balance in the market.

Equilibrium Quantity

The amount of products or services that are available and sought after at the market's balance price.