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State six limitations of Ricardian comparative cost theory.

State six limitations of Ricardian comparative cost theory

Answers

Simon
• The theory cannot be applied to developing countries because these countries are not near to full employment as the theory suggests.
• The theory assumes fixed quantity of resources and does not consider the effect of growth.
• The theory comes to conclusion of complete specialization. Such complete specialization is unrealistic even in two countries and two commodities model.
• The theory assumes free trade. In real sense trade has many barriers and restrictions
• The theory concentrates on the supply of goods and ignores the demand.
• This theory ignores the transportation costs in determining the cost differences.
• The theory assumes full employment but this is far from the reality because production cost may change as the courtiers at different levels of employment move toward full employment.
• The theory concentrates on trade between two countries but international trade can be trade of more than two countries.
skilled writter answered the question on April 26, 2018 at 16:58

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