Economics · International Trade Theories
According to David Ricardo's theory of comparative advantage, trade between two countries is mutually beneficial even when one country has an absolute advantage in producing all goods. Which of the following best captures the underlying principle?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1A country should export goods with the highest absolute productivity.
- 2Opportunity cost determines the pattern of specialisation and trade.✓
- 3Factor endowments alone determine the gains from trade.
- 4Trade is only beneficial when both countries face identical production technologies.
Correct answer
Opportunity cost determines the pattern of specialisation and trade.
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