Final answer:
Adam Smith's theory of absolute advantage is about producing goods more efficiently, while David Ricardo's comparative advantage focuses on specializing in goods with the lowest opportunity cost to gain from trade.
Step-by-step explanation:
Absolute Advantage vs Comparative Advantage
Adam Smith's theory of absolute advantage refers to the ability of a country to produce a good more efficiently than other countries. However, David Ricardo's theory of comparative advantage suggests that a country should specialize in producing and exporting goods for which it has a lower opportunity cost compared to other countries, even if it does not have an absolute advantage.
The conditions under which comparative advantage leads to gains from trade include the existence of different opportunity costs between countries, as well as the ability of countries to trade freely. When countries specialize based on their comparative advantages and engage in trade, they can achieve a higher level of overall production and consumption than they would in isolation.
Opportunity costs play a crucial role in determining a country's comparative advantage. It is the cost of forgone opportunities, the benefits that could have been received by taking an alternative action. Countries gain from trade by specializing in goods for which they have the lowest opportunity cost, thus maximizing their efficiency and productivity.