Palladia specializes in the production of beef and produces beef more

QUESTION

Palladia specializes in the production of beef and produces beef more efficiently than any other country. It buys wheat, which it produces less efficiently than beef, from Rhodia, even though it produces wheat more efficiently than Rhodia.

Which of the following theories of international trade supports Palladia’s decision to buy wheat from Rhodia?

A. The Samuelson critique

B. Mercantilism

C. Ricardo’s theory of comparative advantage

D. Adam Smith’s theory of absolute advantage

E. The Leontief paradox

ANSWER

C