Consider the following statements with regard for the "Theory of Absolute Cost Advantage" : (i) Productive efficiency differed among different countries because of diversity in natural and acquired resources possessed by them. (ii) The difference in natural advantage manifests in varying climate, quality of land, availability of minerals, water and other resources. (iii) The difference in acquired resources manifests in different levels of technology and skills available. Identify the correct code from the following :
The question asks to evaluate statements regarding the Theory of Absolute Cost Advantage and identify the correct ones.
Theory of Absolute Cost Advantage Analysis
This theory, often attributed to Adam Smith, explains international trade based on countries having an absolute advantage in producing certain goods due to lower production costs. This cost difference arises from variations in resource availability and productivity.
Statement Evaluation
- Statement (i): Productive efficiency differed among different countries because of diversity in natural and acquired resources possessed by them. This statement is correct. The theory fundamentally relies on the idea that differences in resource endowments (both natural and acquired) lead to varying levels of productive efficiency across nations.
- Statement (ii): The difference in natural advantage manifests in varying climate, quality of land, availability of minerals, water and other resources. This statement is correct. It accurately identifies key components of natural resources that contribute to absolute advantage. For example, a country with favorable climate and fertile land has an absolute advantage in agriculture.
- Statement (iii): The difference in acquired resources manifests in different levels of technology and skills available. This statement is correct. Acquired resources, such as advanced technology and skilled labor, significantly impact a country's ability to produce goods efficiently, forming another basis for absolute advantage.
Conclusion
Since all three statements (i), (ii), and (iii) correctly explain the underlying reasons for differences in productive efficiency as per the Theory of Absolute Cost Advantage, the correct option is the one stating that all statements are correct.
Important Questions from Theories of international trade
The following statements relate to transnationality. Choose the correct code for the statements being correct or incorrect.
Statement I: The UNCTAD developed an index to compare the transnationality of countries in which TNCs operate.
Statement II: The UNCTAD followed parameters like FDI flow as a percentage of gross fixed capital formation, FDI inward stock, value added by foreign affiliates and jobs created by them.
Heckscher-Ohlin Theory of factor endowment suggests which of the following types of relationships?
(A) Production — Marketing relationship
(B) Land — Labour relationship
(C) Marketing — Capital relationships
(D) Labour — Capital relationships
(E) Technological complexities
Choose the correct answer from the options given below:
According to the Heckscher-Ohlin theory, which one of the following statements is correct?
Given below are two statements:
Statement I: Translation exposure refers to the exchange gain or loss occurring from the difference in the exchange rate at the beginning and the end of the accounting period.
Statement II: Transaction exposure refers to the change in the value of the firm caused by the unexpected changes in the exchange rate.
In the light of the above statements, choose the most appropriate answer from the options given below:
Match List I with List II
LIST I (Theory) LIST II (What Nation's do) A. Mercantilism I. The range of products made or grown for export would depend upon the relative availability of different factors in each country. B. Theory of Absolute Advantage II. Gold and silver are the mainstay of national wealth C. Theory of Comparative Advantage III. Countries should specialize in the production of goods for which they have absolute advantage D. Factor Endowment IV. Nations should produce those goods for which they have the greatest relative advantage Choose the correct answer from the options given below:
