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�Factor Immobility�Different National Policies�Differences in currency systems�Cultural differences�Economic nationalism�Different natural endowments�External Economies�Problem of balance of payments�Trade and exchange controls�Specific problems�

FEATURES OF INTERNATIONAL TRADE

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Significance of trade

  • DIVISION OF LABOUR AND SPECIALISATION
  • PROMOTES DEVELOPMENT
  • OPTIMUM USE OF RESOURCES
  • WIDENS MARKET
  • STABILISATION OF PRICES
  • TECHNOLOGICAL PROGRESS
  • PROMOTES INVESTMENT
  • CHECKING MONOPLIES

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Classical Theory

ASSUMPTIONS:

  1. LAIZZEZ-FAIRE SYSTEM
  2. PERFECT COMPETITION
  3. BASED ON LABOUR THEORY
  4. LAW OF CONSTANT COST
  5. 2X2 MODEL
  6. ABSENCE OF TRANSPORT COST
  7. NO CHANGE IN TASTES AND PREFERENCES
  8. TECHNOLOGY REMAIN CONSTANT
  9. FREE TRADE, AND 10). BARTER SYSTEM

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Criticisms:

  1. Based on labour theory
  2. Based on constant cost
  3. Mobility and immobility
  4. Free Trade
  5. No perfect competition
  6. Capital movements
  7. Ignores demand side
  8. Capital movements
  9. Static conditions
  10. No complete specialisation
  11. Assumption of full-employment
  12. Neglects product varities