Which one of the following is not the assumption of Theory of Absolute and Comparative advantage?
Both Adam Smith's Theory of Absolute Advantage and David Ricardo's Theory of Comparative Advantage assume a two-country, two-commodity world using labour as the sole factor…
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Which one of the following is not the assumption of Theory of Absolute and Comparative advantage?
Answer and explanation
Correct answer C
Both Adam Smith's Theory of Absolute Advantage and David Ricardo's Theory of Comparative Advantage assume a two-country, two-commodity world using labour as the sole factor of production with zero transportation costs and free trade. Therefore, the presence of transportation costs for shipping goods between countries is not an assumption of these classical theories.
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