Based on the recognition that states differ in their resource endowments of land,labor,and capital,a theory developed arguing that states should trade based on their ________,whereby each state produces and exports those products that it can produce most efficiently relative to other states.

Question

Quizplus · Accepted Answer

The theory described in the question is the theory of comparative advantage, which argues that states should specialize in producing and exporting goods that they can produce at a lower opportunity cost than other states. This is based on the recognition that states differ in their resource endowments and therefore have different relative efficiencies in producing different goods. Exchange rates and national interest are not directly related to this theory, and while absolute advantage is related to the idea of efficiency in production, it does not take into account opportunity cost as comparative advantage does.

Based on the Recognition That States Differ in Their Resource