What assumptions are made in the theory of international trade for countries to benefit from it?
The theory of trade is based on the following assumptions
- The amount of labor and capital in two countries differ (difference in endowments)
- Technology is the same among countries (a long-term assumption)
- Assume two countries
- Assume two commodities e.g. cotton and coffee
- Assume labour is the only factor of production
- Assume that supply of labour is constant and fully employed
- Assume perfect mobility of factors of production within the country and immobile between countries
- No transport costs are involved
- Barter trade system exists
- Production of commodities is subject constant costs
CATEGORIES Economics
TAGS Dr. Bbosa Science