CFA Level I · CFA Level I Exam · International Trade
Under the Ricardian model of trade, the source of comparative advantage is differences in:
In the Ricardian model, comparative advantage arises from differences in labor productivity, which reflect differences in technology. Labor is the only factor of production, so relative productivity determines opportunity costs. Factor endowments belong to Heckscher-Ohlin, and scale economies to new trade theory.
- Arelative factor endowments across countries
- Blabor productivity, or technology, across countriesCorrect
- Ceconomies of scale in differentiated industries
Explanation
The Ricardian model has labor as the only factor and attributes comparative advantage to differences in labor productivity or technology. Factor endowments are the basis of the Heckscher-Ohlin model, and scale economies belong to new trade theory.
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