Which of the following is NOT a failing of the theory of comparative advantage?
A)it ignores the role of uncertainty and economies of scale
B)it assumes that factors of production are immobile
C)it assumes that there are no differentiated products
D)it assumes a scarcity of resources

Question

Quizplus · Accepted Answer

The theory of comparative advantage assumes scarcity of resources, so it cannot be considered a failing of the theory. However, choices A, B, and C are all valid criticisms of the theory. The theory does not take into account the impact of uncertainty on trade decisions or the potential for economies of scale to affect comparative advantage. It also assumes that factors of production are immobile, which may not always be the case. Additionally, the theory assumes that all products are homogeneous and do not have any differentiation, which is not always true in reality.

Which of the Following Is NOT a Failing of the Theory