The classical theory of international trade, often associated with the ideas of Adam Smith and David Ricardo, is based on several key assumptions. These assumptions include the notion of comparative advantage, which suggests that countries should specialize in producing goods and services in which they have a lower opportunity cost compared to other nations.

According to this theory, the correct answer is indeed (d)  All the above are false. Let’s explore why:

a. Only countries with low wages will export:

This statement is false according to classical trade theory. The theory doesn’t rely solely on wage differentials. It emphasizes comparative advantage, which is not solely determined by wage levels.

Comparative advantage takes into account the relative efficiency in producing different goods and services, which can be influenced by a range of factors including technological capabilities, natural resource endowments, and levels of capital investment.

b. Only countries with high wages will import:

This statement is also false. Classical theory doesn’t make any direct correlation between wage levels and a country’s propensity to import. Instead, it focuses on the relative costs of production and the principle of comparative advantage.

A country might import goods and services for various reasons including differences in resource endowments, technology, or consumer preferences.

c. Countries with high wages will have higher prices:

This statement is not necessarily true according to classical trade theory. While it’s plausible that countries with higher wages might have higher costs of production for certain goods and services, this doesn’t automatically translate into uniformly higher prices for all products.

Prices are influenced by a multitude of factors including production costs, demand, supply, and competition.

Now, let’s explain why the other options are not correct:

a. Only countries with low wages will export:

As discussed earlier, the classical theory of international trade doesn’t solely hinge on wage levels. It focuses on comparative advantage, which considers a broader set of factors that influence a country’s ability to export certain goods or services. Therefore, this statement oversimplifies the complexities of international trade.

b. Only countries with high wages will import:

This statement also oversimplifies the determinants of international trade. While high-wage countries might import certain goods and services due to factors like differing resource endowments or consumer preferences, this doesn’t mean that low-wage countries do not import. The decision to import is influenced by various economic, social, and political factors.

c. Countries with high wages will have higher prices:

While it’s conceivable that countries with higher wages might have higher costs of production for some goods and services, this doesn’t necessarily translate to uniformly higher prices across all products.

Prices are influenced by a multitude of factors including production costs, demand, supply, and competition. Additionally, price levels are affected by monetary policies, exchange rates, and other macroeconomic factors.

In conclusion, the classical theory of international trade is a nuanced framework that goes beyond simple wage differentials. It emphasizes the concept of comparative advantage, which considers a wide array of factors that influence a country’s trade patterns. Therefore, all the statements presented in the options (a, b, and c) are false according to this theory.