Question

1. Which of the following theories implies that success in foreign trade depends on a complex set of factors where firms and not countries perform most of the trade.

   1. Mercantilism

   2. Comparative cost advantage

   3. Absolute advantage in cost

   4. National competitive advantage.

Answer 1

Option C absolute advantage in cost is the right answer

absolute advantage in cost theories implies that success in foreign trade depends on a complex set of factors where firms and not countries perform most of the trade. Absolute advantage is when a producer can produce a good or service in greater quantity in same cost or same quantity at lower cost than other producers. So, the absolute cost advantage theory implies that the success of foreign trade depends on a complex set of factors where firms and not countries perform most of the trade. Comparative cost advantage and National competitive advantage theory implies that countries perform most of the trade not the firm.