The factor-proportions theory of international trade perfectly explains all trade patterns using only capital and labor as variables.

Question

Quizplus · Accepted Answer

The factor-proportions theory, while useful, does not perfectly explain all trade patterns because it simplifies the complexity of international trade by focusing only on capital and labor, ignoring other factors like technology, economies of scale, and product differentiation.

The Factor-Proportions Theory of International Trade Perfectly Explains All Trade