The document discusses the assumptions and implications of comparative cost advantage theory across multiple countries and commodities. It outlines assumptions of the theory including two countries, two commodities, labor as the only factor of production, no transportation costs, constant returns to scale, and homogeneous labor units. Tables then show examples of exchange rates and production costs for cloth and coffee between India, Sri Lanka, and Nepal under conditions of more countries and commodities, varying labor costs and wage rates, transportation costs, and increasing costs.

1. B.COM SEM-V
UNIT-I
International Economics

2. MULTILATERAL TRADE
&
MARKET IMPERFECTION

3. COMPARATIVE COST ADVANTAGE
THEORY : ASSUMPTIONS
• There are only two countries and two
commodities
• Only labour is factor of production. Quantity of
labour used gives cost of production
• There is no cost of transportation between the
countries
• The law of constant returns to scale operates in
production.
• The units of labour are homogeneous

4. More than two countries
Country Cloth Coffee Exchange rate
India 10 30 1 Cloth : 3 Coffee
Sri Lanka 10 20 1 Cloth : 2 Coffee
Nepal 10 10 1 Cloth : 1 Coffee

6. More than two commodities
Country Goods (Units)
V W X Y Z
India 30 25 20 15 10
Sri Lanka 10 10 10 10 10
Difference 20 15 10 5 0

8. Country Per unit labour cost of
cloth
Per unit labour cost of
coffee
China 12 8
India 4 4
Country Per unit money cost of
cloth (In Rs)
Per unit money cost of
coffee (In Rs)
China 12Rs 8Rs
India 10Rs 10Rs
Wage rate (Per day)
China :- 1 rs
India :- 2.5 rs
Money cost of production

9. Transport costs
Country Goods Unit Price
India Cloth 100 rs
Sri lanka Cloth 150 rs

10. Increasing cost conditions

11. Labour cost