Final answer:
The statement reflects the concepts of absolute advantage, introduced by Adam Smith, and comparative advantage, introduced by David Ricardo. China does not need Smith's absolute advantage; rather, it benefits from Ricardo's comparative advantage in the production and export of toys to the U.S., illustrating why trade can be beneficial even when one country can produce all products more efficiently.
Step-by-step explanation:
The statement "The United States can make certain toys with greater productive efficiency than can China. Yet we import those toys from China." represents the economic ideas of both Adam Smith and David Ricardo. While Smith introduced the concept of absolute advantage, which refers to a country's ability to produce a good more efficiently than another country, Ricardo introduced the notion of comparative advantage, suggesting that countries should specialize in producing goods where they have the lowest opportunity cost, thus benefiting from trade regardless of absolute efficiencies.
Based on the ideas of these economists, the correct interpretation is: that China does not need Smith's absolute advantage to specialize in toys, rather it needs Ricardo's comparative advantage. This means, that even if the U.S. can produce toys more efficiently (absolute advantage), it may still be beneficial for the U.S. to import toys from China if China has a lower opportunity cost in producing those toys, which is the essence of comparative advantage. Therefore, the fourth option is the correct representation of the situation described.