In a Short Essay, Explain the Absolute Advantage Principle

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The Answer is Smith's absolute advantage principle states that a country benefits by producing primarily those products in which it has an absolute advantage-those that it can produce using fewer resources than any other country. Each country can increase its wealth by specializing in the production of goods in which it has unique advantages, exporting those goods, and then importing other goods in which it has no particular advantage. If every nation follows this practice, each can consume more than it otherwise could, generally at lower cost.
A modern example of the principle at work involves the nations of Japan and Saudi Arabia. Japan has no natural holdings of oil, but it manufactures some of the best automobiles in the world. On the other hand, Saudi Arabia produces much oil, but it lacks a substantial car industry. Given the state of their resources, it would be wasteful for each of these countries to attempt to produce both oil and cars. By trading with each other, Japan and Saudi Arabia each employs its respective resources efficiently in a mutually beneficial relationship. Japan gets oil that it refines to power its cars, and Saudi Arabia gets the cars needed by its citizens. Because each country uses its own resources with optimum efficiency and engages in trade, living standards for its citizens are higher than they would be if they had not engaged in trade.

In a Short Essay, Explain the Absolute Advantage Principle

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