Most theories dealing with the principle of comparative advantage explain the pattern of international trade by differences in
A) per-capita income levels.
B) interest rates.
C) demand for consumer products.
D) supply of factors of production.

Question

Quizplus · Accepted Answer

The principle of comparative advantage states that countries should specialize in producing and exporting goods and services in which they have a comparative advantage (i.e., they can produce them at a lower opportunity cost) and import goods and services in which they have a comparative disadvantage. This specialization and trade is determined by differences in factor endowments (i.e., the supply of factors of production such as labor, capital, and natural resources) across countries. Therefore, the correct answer is D, as the other options do not directly relate to factors of production.

Most Theories Dealing with the Principle of Comparative Advantage Explain