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.
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