Question

state four basic assumptions of H-O theory of international trade or recardian theory of comparative advantage​

Answer 1

Answer:

1. Perfect Competition

Many firms produce output in each industry such that each firm is too small for its output decisions to affect the market price. This implies that when choosing output to maximize profit, each firm takes the price as given or exogenous.

2. Factor Mobility

The one factor of production, labor, is assumed to be immobile across countries. Thus labor cannot move from one country to another in search of higher wages.

3. Transportation Costs

The model assumes that goods can be transported between countries at no cost. This assumption simplifies the exposition of the model.

4. Resource Constraint

The resource constraint in this model is also a labor constraint since labor is the only factor of production

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