The comparative advantage theory (CAT) is a trade theory that describes the basis of two nations engaging in trade. Which one among the following statements regarding the theory is not correct?

Q: What is the answer to CAPF 2025 Paper I Q13?

C. Correct — C, the claim that a nation without absolute advantage in any good cannot benefit from trade. That is the proposition Ricardo's theory was written to refute, so as a statement about comparative advantage it is false. Adam Smith had argued that trade rests on absolute advantage — each country exporting what it can make with fewer resources than anyone else. Ricardo showed that what matters is the opportunity cost of producing one good in terms of the other. A country that is less efficient at everything still gives up less of one good to make the other, and by specialising where its opportunity cost is lower and trading, both countries end up consuming beyond what they could produce alone. Being absolutely worse at everything is therefore no bar to gaining from trade, which makes option (c) the statement that is not correct. (Provisional — pending the official UPSC key.)

(a)David Ricardo was the author of the CAT.
(b)The CAT is explained in the book titled On the Principles of Political Economy and Taxation that was first published in 1817.
(c)According to the CAT, the nation which does not have absolute advantage in any goods cannot benefit from trade.
(d)The two nations that engage in trade can gain from specializing in the commodity in which they have a comparative advantage.

Answer

Why

Correct — C, the claim that a nation without absolute advantage in any good cannot benefit from trade. That is the proposition Ricardo's theory was written to refute, so as a statement about comparative advantage it is false. Adam Smith had argued that trade rests on absolute advantage — each country exporting what it can make with fewer resources than anyone else. Ricardo showed that what matters is the opportunity cost of producing one good in terms of the other. A country that is less efficient at everything still gives up less of one good to make the other, and by specialising where its opportunity cost is lower and trading, both countries end up consuming beyond what they could produce alone. Being absolutely worse at everything is therefore no bar to gaining from trade, which makes option (c) the statement that is not correct.

Why the others are wrong

(a)David Ricardo was the author of the CAT. — David Ricardo did author the theory of comparative advantage, setting it out with the celebrated England–Portugal cloth-and-wine illustration. The statement is correct, so it cannot be the answer.
(b)The CAT is explained in the book titled On the Principles of Political Economy and Taxation that was first published in 1817. — The theory appears in On the Principles of Political Economy and Taxation, first published in 1817. Both the title and the year are right.
(d)The two nations that engage in trade can gain from specializing in the commodity in which they have a comparative advantage. — Gains from specialising in the good of comparative advantage are the theory's central conclusion. This statement is correct as printed.

Concept

Comparative advantage explains why trade can benefit both parties even when one is more productive at everything. The measure is opportunity cost: how much of good B a country must give up to make one more unit of good A. Each country specialises where its opportunity cost is lowest and trades for the rest, so world output rises and both can consume outside their own production possibility frontiers. Ricardo set this out in On the Principles of Political Economy and Taxation, published in 1817, and it remains the foundation of trade theory, later refined by the Heckscher–Ohlin account of factor endowments.

Negative-stem items — 'which is not correct' — reward reading each option as a separate true-or-false question instead of hunting for the best answer. Three of these are simple factual attributions about the author, the book and the conclusion, and all three check out. The fourth is a proposition about the theory's content, and it happens to state Adam Smith's absolute-advantage position rather than Ricardo's. That is the standard construction: the false option in a theory question is usually the earlier theory the new one displaced.

Key facts

Comparative advantage rests on opportunity cost, not on absolute productivity.
David Ricardo set out the theory in On the Principles of Political Economy and Taxation, 1817.
A country less efficient at producing everything can still gain from trade by specialising where its opportunity cost is lower.
Absolute advantage, the earlier idea, is associated with Adam Smith.
The Heckscher–Ohlin theory later explained comparative advantage through differences in factor endowments.

Oil portrait of David Ricardo in a dark coat and white cravat, seated and holding a sheet of paper — David Ricardo, the political economist who set out the theory of comparative advantageImage: Thomas Phillips · Wikimedia Commons (Public domain)

Study next

Absolute advantage and Adam Smith's account of the division of labourThe Heckscher–Ohlin factor endowment theory of tradeTerms of trade and how the gains from trade are sharedTariffs, quotas and non-tariff barriersThe World Trade Organization and the multilateral trading system

Common traps

Reading a negative stem as a positive one and marking the first true statement.
Confusing absolute advantage with comparative advantage — the exact confusion this item is built on.
Doubting the correct publication year and marking option (b) without checking the substantive claim.

Asked as a negative-stem item on a named theory, where three options are bibliographic facts and the false one restates the rival theory the work displaced.