The correct answer is (c) per-capita income levels. The theory of overlapping demands, a concept from international economics, predicts that trade in manufactured goods is unimportant for countries with very different per-capita income levels.

This prediction is based on economic principles and the theory of comparative advantage. Let’s explain in detail why this answer is correct and why the other options are not:

(c) Per-capita income levels:

The theory of overlapping demands is a trade theory that suggests that countries with significantly different per-capita income levels will have limited trade in manufactured goods.

This is because when there is a substantial income disparity between two nations, their consumption patterns tend to differ significantly. The country with higher per-capita income will have different preferences and demand for goods compared to the country with lower per-capita income.

In this scenario, it becomes challenging for these countries to find mutually beneficial trade opportunities in manufactured goods because their tastes and preferences for these goods differ due to their income disparities. The theory predicts that trade is more likely to occur when countries have similar per-capita income levels and, therefore, more similar preferences in manufactured goods.

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

(a) Tastes and preferences:

While the theory of overlapping demands does take into account the role of tastes and preferences in trade, it focuses on the specific context of per-capita income levels. In situations where tastes and preferences are similar, trade can be more feasible, but this factor alone does not necessarily lead to the prediction of insignificant trade.

If per-capita income levels are similar, countries with different tastes and preferences can still engage in mutually beneficial trade, especially if they have varying comparative advantages in producing different goods.

(b) Expectations of future interest rate levels:

Expectations of future interest rate levels primarily relate to financial markets and capital flows, rather than the trade of manufactured goods. While expectations of future interest rates can influence capital movements and currency exchange rates, they are not a central determinant of whether trade in manufactured goods is important or not.

(d) Labor productivities:

Labor productivity can play a role in trade, particularly when it comes to the comparative advantage of countries in producing goods. However, the theory of overlapping demands specifically focuses on per-capita income levels as a predictor of the importance of trade in manufactured goods.

Labor productivity is an important factor in the theory of comparative advantage, but it doesn’t directly relate to the theory of overlapping demands, which centers on the income-based differences in preferences and consumption patterns.

In conclusion, the theory of overlapping demands correctly predicts that trade in manufactured goods is unimportant for countries with very different per-capita income levels. This is because significant income disparities lead to differences in tastes and preferences for goods, making it challenging to find mutually beneficial trade opportunities.

While other factors like tastes, expectations of future interest rates, and labor productivities play roles in international trade, the theory of overlapping demands focuses specifically on per-capita income levels as a key determinant of the significance of trade in manufactured goods.