Question

18) A less developed country (LCD) exports its raw materials and most of its agriculture to a more developed country (MDC). The LCD needs the income from these exports but its people do not have enough to eat. Which theory describes this scenario?

Answer 1

Answer:Leontief’s paradox

Explanation: Leontief's paradox in economics states that a country with a higher capital per worker has a lower capital/labor ratio in exports than in the imports.

Leontief’s first study was based on computation from input output tables constructed for the year 1947. He computed for various industries the direct and indirect capital and labour required to produce a given dollar value of output. He then calculated the effects on capital and labour use of a given reduction in both U.S. imports and exports so that the relative commodity composition of exports and imports remained the same.

So, a LDC exports embodies less capital and more labour than would be required to expand domestic output to provide an equivalent amount of competitive imports.