Practical Applicability Ricardian Theory Of Comparative Cost

Applicability of Ricardian Theory inwards Real World ↓

Comparative cost theory inspite of all limitations has remained equally a basic regulation of international trade. Today when the soil is moving towards greater liberalisation in addition to globalisation each soil specialises inwards production of goods in addition to services on the soil of comparative cost wages in addition to enters into international trade.

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Prof. Gottfried Haberler, Frank William Taussig in addition to others attempted to test the practical importance in addition to acceptability of comparative cost theory.

It is argued that :-

1. The ii commodities ii countries model tin forcefulness out last extended to all the commodities in addition to all the countries. Each soil in addition to thus volition specialises inwards the production of those commodities inwards which it enjoys comparative wages in addition to export them to others in addition to import the required goods from others where they are available at a lower cost than at home.
2. The theory which was explained inwards price of labour tin forcefulness out equally good last expressed inwards price of coin equally it is possible to limited the total cost inwards price of money. Specialisation would convey identify on the soil of comparative wages inwards price of coin cost.
3. The supposition of constant returns to scale in addition to no modify inwards applied scientific discipline tin forcefulness out equally good last relaxed. With changes inwards applied scientific discipline in addition to production beingness dependent land to laws of returns, specialisation volition all the same convey identify on the soil of cost wages nether increasing in addition to decreasing cost.
4. Assumptions of "no carry cost" makes the comparative wages theory, it is argued real unrealistic. It is pointed out that later on adding carry cost to the cost of production, each soil volition create those goods inwards which it volition stimulate got cost advantage. After adding carry cost, for example, Bharat may non relish the cost wages against USA or United Mexican States merely it sure as shooting volition stimulate got the wages for selling them inwards the neighbouring countries.
5. It is suggested that cost would non undergo a modify equally the countries piece of work alongside assumptions similar total employment, perfect competition, static nature of the economy, costless merchandise in addition to many other restrictive assumptions.

The supporter of Ricardian theory argued that all the restrictive assumptions of the comparative cost theory could last relaxed in addition to brand the theory practical inwards the real world province of affairs where each soil specialises inwards the production of those goods in addition to services inwards which it has comparative cost wages nether the changing conditions.

The doctrine of comparative wages inspite of its limitations, has remained equally the basic regulation of international trade. Today when the soil is moving towards greater liberalisation in addition to globalisation, each soil specialises inwards the production of goods in addition to services on the soil of comparative cost wages in addition to enters intc international trade. Each soil attempts to lower its cost of production of internationally traded goods .to teach an wages inwards the global market. Therefore, it could last argued that Ricardian explanation of the soil of international merchandise is valid in addition to applicable to the existent world.

Conclusion ↓

On the soil of competitive cost advantage, countries tin forcefulness out teach inwards into international trade. Each soil attempts to lower its cost of production of internationally traded goods to teach far wages inwards the global market.

So Ricardian explanation of basic of international merchandise is valid in addition to applicable to the existent soil situation.

Articles On Ricardian Theory ↓

1. Ricardo's Theory of Comparative Advantage - International Trade.
2. Limitations of Ricardian Comparative Cost Theory.