Multiple choice

India imports machines and exports handicraft items. This kind of trade is explained by which of the following theories?

  1. Theory of Absolute Differences in Costs

  2. Theory of Comparative Differences in Costs

  3. Purchasing Power Parity theory

  4. The Heckscher-Ohlin theory

  5. Theory of Opportunity Costs
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

In this case, Heckscher-Ohlin theory will apply. According to this theory, capital abundant countries will export the relatively cheap capital-intensive commodities and labour abundant country will export relatively cheap labour-intensive commodities.

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