Statement 1 Trade between two countries takes place on account of differences in costs Statement II ...........

Indian Economy Growth and development

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Statement (1): Trade between two countries takes place on account of differences in costs.

Statement (II): Different countries have different factor endowments

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EPFO APFC (2015)

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Both Statement (1) and Statement (II) are individually true and Statement (II) is the correct explanation of Statement (1)

Both Statement (1) and Statement (II) are individually true but Statement (II) is not the correct explanation of Statement (I)

Statement (I) is true but Statement (II) is false

Statement (I) is false but Statement (II) is true

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Explanation:

- Statement (1): Trade between two countries takes place on account of differences in costs.

- True. This refers to the concept of comparative advantage, where countries trade because they can produce goods more efficiently (at lower costs) than other countries.

- Statement (II): Different countries have different factor endowments.

- True. This statement is based on the Heckscher-Ohlin theory, which explains that trade can occur because countries possess different resources or factors of production.

- Explanation:

- Statement (II) complements the explanation of Statement (1), as differences in factor endowments lead to differences in production costs, justifying international trade.

The correct option is Option 1: Both Statement (1) and Statement (II) are individually true and Statement (II) is the correct explanation of Statement (1).