Which principle directs states to maximize efficiency by focusing on goods that provide the highest net income?

The principle that directs states to maximize efficiency by focusing on goods that provide the highest net income is the law of comparative advantage. This concept, formulated by economist David Ricardo, suggests that even if one country can produce all goods more efficiently than another, both countries will benefit from trade by specializing in the production of goods for which they have the lowest opportunity cost.

By concentrating on goods where they are relatively more efficient compared to other products or other nations, countries can trade with one another and thereby improve overall economic welfare. This leads to a more efficient allocation of resources globally, as countries are encouraged to produce what they are most suited for, thus maximizing their potential gains from trade. The impact of the law of comparative advantage is substantial in international trade, as it promotes specialization and efficient production practices among nations.

In contrast, the law of absolute advantage focuses on the ability of a country to produce a good more efficiently than another, but it does not account for opportunity costs. Competitive advantage theory encompasses more than just trade principles and includes factors like the ability to innovate and create unique products. The market efficiency principle generally relates to how well market prices reflect true costs and values rather than specifically addressing production and trade efficiency among states.