Question

According to the law of comparative advantage, the less efficient of the two trading countries should specialize in and export the commodity in which it manages to have an absolute advantage. True False

Answer 1

Answer: False

Explanation:

David Ricardo formulated the law of comparative advantage which was published in 1833. The holds that under free trade, an agent will produce more of and consume less of a good for which they have a comparative advantage.

According to David Ricardo, no country has absolute advantage when it comes to trade and he suggested that countries should focus more on producing goods they have comparative advantage in and import those with higher opportunity cost.