Question

QUESTION 27

1. The theory of overlapping demands predicts that trade in manufactured goods is unimportant for countries with very different:

   		Tastes and preferences
   		Expectations of future interest rate levels
   		Per-capita income levels
   		Labor productivities

QUESTION 28

1. Linder's theory of overlapping demand provides an explanation of:

   		Product life cycle theory
   		Factor endowment model
   		Economies of large-scale production
   		Intraindustry trade

Answer 1

The theory of overlapping demands predicts that trade in manufactured goods is unimportant for countries with very different per-capita income levels

as Linder's theory of overlapping demand says that trade will be stronger and better between countries with same or similar per capita income.

Linder's theory of overlapping demand provides an explanation of factor endowment model

Linder's theory tells us that even if two countries have similar factor intensities they can trade given the fact that they have similar demand structure. This was an improvement over the Hecksher Ohlin model which could not explain why countries with similar factor intensities indulge in trade.