The theory of comparative advantage _____.
A) reduces the wealth of the nation in the short run
B) provides direct policy advice
C) explains patterns of trade based on factor endowments
D) was the first theory to incorporate dynamic changes in patterns of trade

Question

The theory of comparative advantage _____.
A) reduces the wealth of the nation in the short run 
B) provides direct policy advice 
C) explains patterns of trade based on factor endowments 
D) was the first theory to incorporate dynamic changes in patterns of trade

Quizplus · Accepted Answer

The theory of comparative advantage explains patterns of trade based on factor endowments, meaning that countries will specialize in and export goods that they can produce more efficiently (and therefore comparatively advantageously) than other countries, leading to mutually beneficial trade. It does not provide direct policy advice, reduce the wealth of the nation in the short run, or incorporate dynamic changes in patterns of trade (that would be the theory of competitive advantage).

The Theory of Comparative Advantage _____