The classical theory of comparative advantage is used to explain the benefits of international trade. Which of the following represents a key limitation or unrealistic assumption of this theory?
It assumes that labor and other factors of production are perfectly mobile between domestic industries, ignoring the risk of structural unemployment.
It suggests that a nation can only benefit from trade if it possesses an absolute productivity advantage in at least one sector.
The gravity model of trade shows that the volume of trade between two nations is primarily determined by their relative GDP sizes.
It assumes that countries will specialize in goods that intensively utilize their most abundant endowment factors.
35 exam-style questions on OCR A Level Economics Specialisation and trade. Each one has a worked solution and a mark scheme showing where the marks go.