If we are to demonstrate gains from trade in the theory of comparative advantage, it is necessary to assume that:
A)one country must have an absolute advantage in the production of both goods.
B)one country cannot have an absolute advantage in the production of both goods.
C)one country must be considerably larger than the other.
D)a country must be relatively more efficient in the production of one of the goods.
E)factors of production have to be free to move between countries.

Question

Quizplus · Accepted Answer

The theory of comparative advantage assumes that countries have different relative efficiencies in the production of goods, leading to potential gains from trade. Therefore, option D, which states that a country must be relatively more efficient in the production of one of the goods, is the correct choice. The other options are either incorrect or unnecessary assumptions for the theory of comparative advantage.

If We Are to Demonstrate Gains from Trade in the Theory