Practise explaining limitations of absolute and comparative advantage theories with CAIE Economics AS questions and mark schemes.
Country X has a comparative advantage in producing wheat and country Y in producing cars. However, the countries choose not to specialise and trade.
What is a valid reason for this behaviour?
The cost of transport is high relative to the opportunity cost differences between the countries.
The exchange rate lies within the countries' opportunity cost ratios.
There is immobility of factors of production between the countries.
Trade is based on absolute rather than comparative advantage.
A