David Ricardo put forward the Law of Comparative Advantage in his book "On the Principles of Political Economy and Taxation," published in 1817.
This theory is based on the following assumptions:
1. Two nations and two commodities
2. Free trade
3. Perfect mobility of labour within each nation but immobility between the two nations
4. Constant costs of production
5. No transportation costs
6. No technical change
7. The labour theory of value
The basic idea behind this theory is that each nation will export the commodity in which it has an comparative advantage (lower opportunity cost). If both of the countries have a lower opportunity cost in the same commodity, then no international trade will take place according to this theory.
9 окт 2024
