Consider two outcomes in a pure exchange economy: Outcomes 1 and 2. Outcome 1 is Pareto efficient. Outcome 2 is not Pareto efficient. With reference to the following statement “Moving from Outcome 2 to Outcome 1 is a Pareto improvement” which of the following is true? A) This must be the case as Outcome 2 is not Pareto efficient and Outcome 1 is. B) This may be the case if both Outcomes are equilibria. C) This cannot be if the endowment means that both Outcomes are affordable. D) This is only the case if no-one is made worse off moving from Outcome 2 to 1.

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The theory of absolute advantage was given by Adam Smith in the year 1776.