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Equal Cost Differences In Comparative Cost Theory

Equal Differences in Costs: If there are equal differences in production costs, there is hardly any possibility of international trade between the two countries as there is no gain to either country. The following illustration shall explain it better-

Suppose, India can produce with one unit of labor units of jute or 2 units of cotton. Egypt can produce with one unit of labor either one unit of jute or one unit of cotton.

In the above example, the costs of production of jute and cotton both the countries are in the ratio of 1 : 1. In India, unit of jute = 1 unit of cotton and the same ratio i.e., 1 unit of jute 1 unit of cotton holds good for Egypt. Now if India produces jute only and imports cotton, it cannot get more than one unit of cotton in exchange for 1 unit of jute. Similarly, if Egypt specializes in the production of cotton, it cannot get more than 1 unit of jute in place, of 1 unit of cotton.

No country will be in advantage in exchanging the good’s because the ratio of costs is the same in the two countries. Thus, there is no possibility of trade between these two countries equal there are equal differences in costs. International trade between two countries is possible if both the countries are in advantage. Next

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