Q.35. What are the assumptions and criticism
relating to the theory of comparative advantage?
ASSUMPTIONS OF
THE THEORY
The comparative cost theory is based
on the following assumptions:
i. Labour is regarded as the sole
factor of production and the cost of production only consists of labour cost.
ii. Production is subject to the law
of constant returns.
iii. Factors of production are
assumed to the perfectly module within a country but immobile between
countries.
CRITICISM
The theory of comparative cost is
criticized on the following grounds.
Assumption of
Constant Cost
The classical economists were of the
opinion that additional quantities & a commodity could be obtained with the
same expenditure of cost per unit us previously But this is not valid
assumptions lost ratios are subject to change where specialization between the
two countries has gone a pace.
Some Static
Assumptions
The comparative cost theory in a
number of static assumptions of fixed costs industrial production functions
between trading countries and fixed supply of land, labour, capital etc. It
cannot be applied 100% to the real world.
Assumption of perfect mobility inside and immobility outside a country, these assumptions seems to be un-applicable to todays
modern world of communication and technology the development of cheap quick and
safe means of transport and communication has broken down this immobility to a
great extent.
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