Consider the following statements in the context of the New Trade Theory: (i) It explains why countries…
New trade theory explains intra-industry trade through differentiated products, increasing returns and imperfect/monopolistic competition. Free trade is not a defining…
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Consider the following statements in the context of the New Trade Theory:
- (i) It explains why countries trade in similar goods.
- (ii) It assumes free trade.
- (iii) It assumes that trade takes place in monopolistic conditions.
- (iv) It exploits the economies of scale in production.
Answer and explanation
Correct answer A
New trade theory explains intra-industry trade through differentiated products, increasing returns and imperfect/monopolistic competition. Free trade is not a defining universal assumption; models can include trade costs/policy. Thus the similar-goods/monopolistic-conditions/scale-economies set best captures the intended features. Other codes omit a core feature or make free trade essential.
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UGC NET Economics