a.
Definition
b.
Assumption
c.
Importance
d. Disadvantages
Theory of comparative cost is a process by which a
nation should not waste their scarce
resources o[n producing the
commodities which they can obtain from aboard at a
lesser cost, a nation should divert its resources only to the production[n
of commodities in which they have
greatest relative efficiency and trade
for products which they can not
produce efficiently.
For example, with the help of his comparative cost theory tired to illustrate that
even if Portugal could produce wine
and cloth more cheapy (in gterms
of labour hours) them England, it will be beneficial for Portugal
to specialize in the production of wine,
because she is comparatively more
efficient in its production them cloth,
so if Portugal concentrate in the production of
wine and England specializes in
the production of cloth, trade will; be mutually profitable to them because the have now a larger supply
of wine and cloth. The principle of
comparative cost can be make clear by taking a simple example from
our every day life. Let us suppose,
there is
a very successful barrister who at the very same times is a very good
typist will it be advantageous for the barrister to type all
his legal documents himself? The answer
is no. the time which he spends in
typing his papers can be more profitable
utilized in the preparation and preaching
of his cases in courts.
For instance,
if the types all his legal document himself, he can scare N2000 per month, if he engages a typist and spends that time in the preparation of cases
he can earn N4000 per month. It will
thus be profitable for the barrister to derot his time in the preparation of case and pleading
them in court than doing any other work..
In economic technology, we can say, that through the
barrister has an advantage in the both
preaching his cases and typing of document , got he can earn more if he devot
himself exclusively to the
occupation in which he has the
greater comparative advantage ie, in the legal work, we can take many other example like this to clear the concept
of comparative cost. For instance, it is advantageous for a doctor to employ a dispenser them to do the work of dispensary himself,
though be himself is a better dispense
Theory of comparative cost as applied to international
trade is therefore, that each country
tends to produce, not necessarily
what it can produce more cheapy
than an other country, but those articles which it can produce at the greatest relative advantage, ie at
the lowest comparative
cost. Each country will produce that article
in the production of which its
superiority is more marked or its
inferiority least marked . It may be remembered
have that when the products of one country exchange for
that of another its is not the cost of
production which we compare of the production of the commodities concerned.