The trade theory that says countries should concentrate production on those products using their most abundant production factors is the ________.
A)factor proportions theory
B)theory of comparative advantage
C)theory of absolute advantage
D)theory of nontradable goods

Question

Quizplus · Accepted Answer

The factor proportions theory, also known as the Heckscher-Ohlin theory, states that countries should specialize in producing and exporting those goods that require their abundant factors of production and import goods that require their scarce factors of production. This theory assumes that countries have different factor endowments, such as labor, capital, or natural resources, which determine their relative costs of production and comparative advantages in international trade. The theory of comparative advantage, on the other hand, argues that countries should specialize in producing and exporting those goods for which they have the lowest opportunity cost compared to other goods, regardless of their factor endowments. The theory of absolute advantage suggests that countries should specialize in producing and exporting those goods for which they have an absolute advantage over other countries in terms of productivity or efficiency. The theory of nontradable goods deals with the effects of trade on prices and welfare in markets where some goods cannot be traded internationally due to transportation costs, tariffs, or other barriers.

The Trade Theory That Says Countries Should Concentrate Production on Those