1.

Write Adam Smith’s theory of Absolute Cost Advantage Assumptions.

Answer»

Assumptions: 

1. There are two countries and two commodities (2 × 2 model). 

2. Labour is the only factor of production. 

3. Labour units are homogeneous. 

4. The cost or price of a commodity is measured by the amount of labour required to produce it. 

5. There is no transport cost.



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