Which theory emphasizes the advantages of specializing in the production of goods that a country can produce efficiently?

The theory that emphasizes the advantages of specializing in the production of goods that a country can produce efficiently is known as Comparative Advantage. This concept was introduced by economist David Ricardo and explains how countries can benefit from trade by specializing in the production of goods for which they have the lowest opportunity cost relative to other countries.

When a country focuses on producing goods it can make more efficiently than others, it not only maximizes its own output but also enhances global trade dynamics. Even if one country is more efficient in producing all goods compared to another country, it still makes sense for both to specialize in what they produce best and trade with each other. This way, all parties involved can enjoy a greater quantity and variety of goods.

For example, if Country A is highly efficient in producing wine, while Country B is great at producing cloth, both countries can benefit by specializing and trading these goods rather than trying to produce both. This specialization leads to more efficient resource allocation and a higher overall level of production and consumption.

Other theories, like Absolute Advantage, focus on how a country can produce more of a good than another country, regardless of opportunity costs; Mercantilism centers around the idea of maximizing exports and minimizing imports; and Factor Endowment Theory posits that a