2016 · Q58
Statement (I): Trade between two countries takes place on account of difference in costs. Statement (II): Different countries have different factor endowments.
Indian EconomyInflation and external sector
- ABoth statements (I) and Statement (II) are individually true and Statement (II) is the correct explanation of Statement (I)
- BBoth statement (I) and statement (II) are individually true but Statement (II) is not the correct explanation of Statement (I)
- CStatement (I) is true but Statement (II) is false
- DStatement (I) is false but Statement (II) is true
Explanation
Ricardo’s comparative-cost theory holds that trade arises from differences in the costs of production between countries (I is true), and the Heckscher–Ohlin theory explains those cost differences by countries’ differing factor endowments (II is true — and explains I). Hence (A).