Absolute and Comparative Cost Advantage (HINDI)

Theory of Comparative Cost Advantage, given by Ricardo was a significant modification over Smith’s Theory of Absolute Cost Advantage. The Smith’s theory itself was a significant departure from the existing wisdom - Mercantilist’s, as it suggests when two nations trade both stand to gain. A nation that can produce a good-X cheaper than the other nation will produce and export to that nation the good-X and import from that nation the good that it produces costlier say good-Y. So both will gain from producing and exporting the good that they can produce cheaper. But according to this theory trade is not justified when one nation can produce both the good cheaper. Ricardo’s Comparative Advantage theory demonstrates that trade is still possible and gainful for both nations.
Ricard’s assertion is that each good involves ‘opportunity cost - sacrificing something to produce something. Since productive resource (labour) is fixed when a commodity is produced a certain amount of other commodities that could have been produced, gets sacrificed. So rather than producing a good whose opportunity cost is high, it is advisable to import it from the country where it can be produced with least opportunity cost. So nations should devote their productive resource to the production of a good that it can produce efficiently regardless of the fact that it can produce both goods cheaper or costlier than the other countries. Cost-effectiveness is measured in terms of labor - producing a unit of good with less amount of labor.
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