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.

ANSWER:

A. Country A should import product X from country B and it should not attempt to produce it at home.