Which of the following is not the characteristics of theory of comparative cost advantage? A. There is…
Ricardo's theory of comparative cost assumes full employment of factors (A), two countries, two commodities and a single factor of production, labour (C), and no transport…
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Which of the following is not the characteristics of theory of comparative cost advantage?
A. There is full employment of the factors of production
B. There are two countries, two commodities and two factors of production
C. There are two countries, two commodities and one factor of production
D. There is absence of transportation cost
E. The countries are capital intensive only.
Answer and explanation
Correct answer D
Ricardo's theory of comparative cost assumes full employment of factors (A), two countries, two commodities and a single factor of production, labour (C), and no transport costs (D). Two factors of production belong to the Heckscher-Ohlin model, and the theory makes no assumption that countries are capital intensive only. So B and E are the statements that are not its characteristics; any set containing A, C or D lists genuine assumptions.
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UGC NET Commerce