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?
1 )
The exchange rate lies within the countries’ opportunity cost ratios.
2 )
There is immobility of factors of production between the countries.
3 )
Trade is based on absolute rather than comparative advantage.
Transport costs are high relative to the opportunity cost differences between the countries.
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