International TRADE
Smith's Theory of Absolute Differences in Costs 5. All units of labor are identical. (Smith's theory of absolute differences in 6. Labor costs to commodity prices)
That is, the number of labor units engaged in the production of each according to Smith is the only reason for international trade
Determines. Absolute differences in costs have to occur. According to this theory
7. Specialization of goods under the law of constant costs or consideration to each country in the production of that commodity
Is produced. Which it needs at a much cheaper rate than other countries
8. Can produce on the basis of the barter system between the two countries and exchange it with those goods
Trade is done. Which cost less in other countries.
9. Technological knowledge is unchanged.
10. Means of production The principle of comparative differences in the cost of records is entirely within each country. It is dynamic but completely motionless between the two countries. (Ricardo's theory of comparative
11. Trade between the two countries takes place independently. differences in costs)
12. No transportation costs in doing business between the two countries according to records, but absolute differences in costs. Are not. The comparative difference determines the trade relations between two countries 13. In both countries all the means of production are fully employed. When a country does business with another country. Are engaged Then he will export the goods in which his comparative
Given the above assumptions, Ricardo shows that production costs are low and will import those items. Trade between the two countries is possible when a country has higher relative production costs for both goods. According to Ricardo, | There is absolute advantage in the production of, but this is the basis of international trade other than one.
Have a comparative advantage in the production of. This is called Ricardo's England and
The following table shows the beliefs of the principle (Assumptions of the | theory) by a famous example of trade between Portugal.
Table: Ricardo's principle of comparative costs of producing a unit of the object following
The expected labor-hour of labor is based on assumptions
Country liquor
Cloth 1. Suppose only two countries are England and Portugal.
England
120 2. They produce two identical items alcohol and clothes
100 do.
Portugal
80
90 3. The interests are the same in both countries.
The above table shows that a 4. Labor of wine is the only means of production in England.
The unit required 120 labor hours to produce, while
