Since the good is in large supply and the demand is low, than the price of that good would be low. However, if less white watches were produced, it would become scarce (low supply) than demand would increase, increasing the price. Smith also observes the fluctuations of wages in a similar light. If there is a large labor force and a lot of competition between workers, than wages would be lower. However, if there were a smaller labor force and a larger amount of employers seeking employment, wages would be higher, because the compaction would be between the employers.
This could be seen as the supply and demand of labor and employment. Free trade was also advocated between countries, since certain countries held an absolute advantage in watches online. A country would have absolute advantage if labor costs to produce a certain good were cheaper in their country than another. For example, in Germany the labor costs to produce beer may be cheap, but the labor costs to produce pretzels may be expensive. In Austria, however, it may be cheap to produce pretzels and expensive to produce beer. The citizens of both Germany and Austria would like to enjoy cheap beer and pretzels. This would be possible if both countries produced the commodity in which they had the absolute advantage and then engaged in free trade.
David Ricardo was one of the next scholars to expand upon the theories produced in The Wealth of Nations. Ricardo believed that Smith’s value theory was too simplistic and focused too much on the short-term. Ricardo instead created a labor theory of value. “The value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative quantity of labor which is necessary for its production, and not on the greater or less compensation which is paid for that labor.” Whereas Smith only looked at the cost of the labor it took to produce a good, Ricardo went beyond that to measure the labor itself. The cost of labor could depend upon the competition between laborers or employers; the amount of labor needed was pretty consistent at any given point. According to Ricardo, the price of a good in the long-run depends on the change in the amount of labor which is needed to produce it. Ricardo also went on to modify Smith’s theory of absolute advantage.