Question

Theory based on blank states that international and interregional differences in production costs occur because of differences in the supply of production factors.

A. Comparative advantage
B. Absolute advantage
C. Factor endowments
D. Factor price equalization

Answer 1

The theory of comparative advantage explains how international and interregional differences in production costs occur due to differences in the supply of production factors.

Step-by-step explanation:

The theory of comparative advantage explains why countries trade and how different factors contribute to international and interregional differences in production costs. According to this theory, these differences occur because of differences in the supply of production factors, which are the resources and inputs used in the production process. Resources like labor, capital, land, and technology can vary across countries, leading to variations in production costs.