The correct answer is: A. Theory of comparative advantage.
The theory of comparative advantage is an economic theory that explains how countries can benefit from trade even if one country is more efficient at producing all goods than another. According to the theory, countries should specialize in producing goods in which they have a comparative advantage, which is a lower opportunity cost of producing a good than another country. By specializing in their areas of comparative advantage, countries can produce more goods and services than they could if they tried to produce everything themselves. This increased production leads to lower prices and higher standards of living for all countries involved in trade.
The theory of absolute advantage is an economic theory that states that a country should produce and export goods in which it has an absolute advantage, which is the ability to produce a good more efficiently than another country. However, the theory of absolute advantage does not take into account the opportunity cost of producing a good. For example, a country may have an absolute advantage in producing both wheat and cloth, but if it has a comparative advantage in producing wheat, it should specialize in producing wheat and trade wheat for cloth.
The theory of comparative advantage is more accurate than the theory of absolute advantage because it takes into account the opportunity cost of producing a good. The theory of comparative advantage has been used to explain why countries trade with each other, even when one country has an absolute advantage in all goods.