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Topic Content:
- Law of Comparative Cost Advantage
The law of comparative cost advantage was introduced by an economist called David Ricardo . The law represents an extension and improvement over that of absolute cost advantage.
Ricardo argued that it is possible for a nation to have an absolute advantage of commodities over another nation. He emphasised this notwithstanding, a nation can still engage in trade by producing the commodity in which they have a comparative advantage. The principle of comparative cost advantage states that both countries will benefit if each country specialises in the production of a commodity they have a greater advantage over others.
The law of comparative cost advantage was established on the following assumptions:
- There are only two countries in the world.
- The technology employed in production is the same in
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