Question

Cadmia and Rhodia specialize in the production of textiles and agricultural products respectively. They are the best at their respective specializations. Cadmia trades textiles with Rhodia in exchange for agricultural products. Which of the following is illustrated by this form of trade between Cadmia and Rhodia?
A. Product life-cycle theory
B. Heckscher-Ohlin theory
C. The concept of absolute advantage
D. Mercantilism
E. Theory of national competitive advantage

Answer 1

Answer:

C.  Concept of Absolute Advantage

Explanation:

The concept of absolute advantage propounded by Adam Smith states that a firm or country  should specialize in the production of commodities in which it has the capacity to produce more than its competitors. it refers to the  a certain country’s capability to produce more of a commodity than its global competitors.  

The theory of absolute advantage refers to the capacity of an individual or firm to produce a product in larger quantity  than its competitors.

These theory emphasizes on the principle of specialization leading to higher productivity for individual, firm or a country.  

Therefore from the above explanation the trade between  Cadmia and Rhodia represents the concept of absolute advantage