What assumption does the Comparative Advantage theory make about advantages over time?

What assumption does the Comparative Advantage theory make about advantages over time?

• A. They are dynamic and constantly changing.
• B. They remain relatively static.
• C. They are primarily influenced by government policy.
• D. They depend solely on technological development.

Answer: (B)

The Comparative Advantage theory, originally developed by economist David Ricardo, posits that countries have different efficiencies in producing various goods due to factors such as resource availability and different opportunity costs. One of the core assumptions of this theory is that advantages tend to remain relatively static over time, allowing countries to specialize in the production of certain goods where they hold an advantage. This notion of static advantages means that even as firms and industries evolve, the fundamental aspects that give rise to comparative advantages, such as a country's specific resources or labor skills, remain generally unchanged in the short to medium term. This assumption helps to simplify the analysis in international trade by suggesting that each country will continue to trade based on established comparative advantages, barring significant changes in technology, policies, or resource availability. The other options suggest a degree of dynamism or variability that is not consistent with the assumptions of the original theory. For example, the idea that advantages are dynamic and constantly changing implies that comparative advantages might shift rapidly, which could complicate trading relationships and economic predictions. Similarly, suggesting that they are primarily influenced by government policy or depend solely on technological development diverges from the foundational premise of the theory, which emphasizes inherent country-specific traits as the bases for comparative advantages.

The Comparative Advantage theory, originally developed by economist David Ricardo, posits that countries have different efficiencies in producing various goods due to factors such as resource availability and different opportunity costs. One of the core assumptions of this theory is that advantages tend to remain relatively static over time, allowing countries to specialize in the production of certain goods where they hold an advantage.

This notion of static advantages means that even as firms and industries evolve, the fundamental aspects that give rise to comparative advantages, such as a country's specific resources or labor skills, remain generally unchanged in the short to medium term. This assumption helps to simplify the analysis in international trade by suggesting that each country will continue to trade based on established comparative advantages, barring significant changes in technology, policies, or resource availability.

The other options suggest a degree of dynamism or variability that is not consistent with the assumptions of the original theory. For example, the idea that advantages are dynamic and constantly changing implies that comparative advantages might shift rapidly, which could complicate trading relationships and economic predictions. Similarly, suggesting that they are primarily influenced by government policy or depend solely on technological development diverges from the foundational premise of the theory, which emphasizes inherent country-specific traits as the bases for comparative advantages.