In the classical model of Ricardo, the direction of trade is determined by ?
Correct answer: B. Comparative advantage
- A. Absolute advantage
- B. Comparative advantage
- C. Physical advantage
- D. Which way the wind blows
Explanation
Ricardo's model explains trade through comparative advantage, meaning each country specializes in the good it can produce at a lower opportunity cost. Absolute or physical advantage alone does not determine the direction of trade.
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