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Consider the following statements regarding the Theory of Comparative Advantage:
(1) It promotes specialisation in the sphere of international trade.
(2) It explains why protectionism has been traditionally unsuccessful.
Which of the statements given above is/are not correct?
(1) It promotes specialisation in the sphere of international trade.
(2) It explains why protectionism has been traditionally unsuccessful.
Which of the statements given above is/are not correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'D'. Can you explain this answer?
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Verified Answer
Consider the following statements regarding the Theory of Comparative ...
The law of comparative advantage is popularly attributed to English political economist David Ricardo. David Ricardo famously showed how England and Portugal both benefit by specializing and trading according to their comparative advantages. In this case, Portugal was able to make wine at a low cost, while England was able to manufacture cloth cheaply. Ricardo predicted that each country would eventually recognize these facts and stop attempting to make the product that was more costly to generate. Indeed, as time went on, England stopped producing wine, and Portugal stopped manufacturing cloth. Both countries saw that it was to their advantage to stop their efforts at producing these items at home and, instead, to trade with each other. So, statement (1) is correct.
The theory of comparative advantage helps to explain why protectionism has been traditionally unsuccessful. If a country removes itself from an international trade agreement, or if a government imposes tariffs, it may produce an immediate local benefit in the form of new jobs and industry. However, this is often not a long-term solution to a trade problem. Eventually, that country will grow to be at a disadvantage relative to its neighbours: countries that were already better able to produce these items at a lower opportunity cost. So, statement (2) is correct.
Therefore, the answer is (d).
The theory of comparative advantage helps to explain why protectionism has been traditionally unsuccessful. If a country removes itself from an international trade agreement, or if a government imposes tariffs, it may produce an immediate local benefit in the form of new jobs and industry. However, this is often not a long-term solution to a trade problem. Eventually, that country will grow to be at a disadvantage relative to its neighbours: countries that were already better able to produce these items at a lower opportunity cost. So, statement (2) is correct.
Therefore, the answer is (d).
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Consider the following statements regarding the Theory of Comparative Advantage:(1) It promotes specialisation in the sphere of international trade.(2) It explains why protectionism has been traditionally unsuccessful.Which of the statements given above is/are not correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'D'. Can you explain this answer?
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Consider the following statements regarding the Theory of Comparative Advantage:(1) It promotes specialisation in the sphere of international trade.(2) It explains why protectionism has been traditionally unsuccessful.Which of the statements given above is/are not correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'D'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Consider the following statements regarding the Theory of Comparative Advantage:(1) It promotes specialisation in the sphere of international trade.(2) It explains why protectionism has been traditionally unsuccessful.Which of the statements given above is/are not correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Consider the following statements regarding the Theory of Comparative Advantage:(1) It promotes specialisation in the sphere of international trade.(2) It explains why protectionism has been traditionally unsuccessful.Which of the statements given above is/are not correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'D'. Can you explain this answer?.
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