2025 · Q13
The comparative advantage theory (CAT) is a trade theory that describes the basis of two nations engaging in trade. Which one among the following statements regarding the theory is not correct?
- aDavid Ricardo was the author of the CAT.
- bThe CAT is explained in the book titled On the Principles of Political Economy and Taxation that was first published in 1817.
- cAccording to the CAT, the nation which does not have absolute advantage in any goods cannot benefit from trade.
- dThe two nations that engage in trade can gain from specializing in the commodity in which they have a comparative advantage.
indian-polity-economyeconomy-fundamentals
- ADavid Ricardo was the author of the CAT.
- BThe CAT is explained in the book titled On the Principles of Political Economy and Taxation that was first published in 1817.
- CAccording to the CAT, the nation which does not have absolute advantage in any goods cannot benefit from trade.
- DThe two nations that engage in trade can gain from specializing in the commodity in which they have a comparative advantage.
Explanation
David Ricardo authored the theory of comparative advantage in his 1817 work 'On the Principles of Political Economy and Taxation', so statements (a) and (b) are correct. The theory's central insight is that even a nation with no absolute advantage in any good can still gain from trade by specialising according to comparative advantage, so (d) is correct and (c) directly contradicts the theory. Hence (c) is the not-correct statement.