Match the items of List-I with List-II and indicate the correct code. Codes :List – I List – II a. Absolute Cost Advantage Theory i. The empirical evidence based on US export of labour intensive goods challenging the factor endowment theory. b. Comparative Cost Advantage Theory ii. A country having a direct cost advantage in the production of a product on account of greater efficiency. c. Factor Endowment Theory iii. A country should produce and export a commodity that primarily involves a factor of production abundantly available within the country. d. Leontief Paradox iv. A country should specialize in the production and export of a commodity in which it possesses greatest relative advantage.
Matching International Trade Theories
This question requires matching specific international trade theories listed in List-I with their corresponding descriptions or implications in List-II.
Matching Theories and Descriptions
| List-I Item | Description | Match |
|---|---|---|
| a. Absolute Cost Advantage Theory | i. Empirical evidence challenging Factor Endowment Theory based on US exports. | ii. Direct cost advantage due to greater efficiency. |
| b. Comparative Cost Advantage Theory | iv. Specialize in the production/export where greatest relative advantage exists. | |
| c. Factor Endowment Theory | iii. Produce/export commodity involving abundant factor of production. | |
| d. Leontief Paradox | i. Empirical evidence challenging Factor Endowment Theory based on US exports. |
Theory Explanations
- a. Absolute Cost Advantage Theory: Focuses on a country's ability to produce a good more efficiently (at a lower absolute cost) than other countries. Match (ii) correctly identifies this direct cost advantage from efficiency.
- b. Comparative Cost Advantage Theory: Argues that countries should specialize in producing goods where they have the *greatest relative* advantage, even if they have an absolute advantage in all goods. Match (iv) accurately reflects this concept of relative advantage.
- c. Factor Endowment Theory: States that countries tend to export goods that make intensive use of the factors of production (like labor or capital) that they possess in abundance. Match (iii) aligns with this principle of specializing based on factor abundance.
- d. Leontief Paradox: Refers to Wassily Leontief's finding that US exports were less capital-intensive than US imports, contrary to the predictions of the Factor Endowment Theory. Match (i) correctly describes this empirical observation and its implication.
Correct Code Determination
Based on the matching above:
- a matches with ii
- b matches with iv
- c matches with iii
- d matches with i
Therefore, the correct code is a-ii, b-iv, c-iii, d-i.
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:
