The document discusses theories of international trade, including: 1) David Ricardo's theory of comparative advantage, which states that countries should specialize in goods they have a comparative cost advantage in. 2) Absolute and comparative differences in costs as bases for international trade according to Adam Smith and Ricardo respectively. 3) Equal differences in costs not providing a basis for trade between countries with equal production ratios.

1. Classical Theory of International Trade Theory of Comparative Costs was discussed by the famous economist David Ricardo in his book, Principles of Political Economy and Taxation(1871). The theory is also called Theory of Comparative Advantage.

6. Absolute Difference in Costs (One day’s production of one Lab.) +2 +2 8 8 6 6 Total -2 +4 0 8 2 4 Nepal +4 -2 8 0 4 2 India Wheat Rice Wheat Rice Wheat Rice Country Change in production Production after Int. trade Production before trade

8. Comparative Difference in Costs (One day’s production of one Lab.) -2 +6 16 20 18 14 Total +8 -4 16 0 8 4 Nepal -10 +10 0 20 10 10 India Country Wheat Rice Wheat Rice Wheat Rice Change in production Production after Int. trade Production before trade

10. Equal Difference in Costs 6 3 Nepal 8 4 India Wheat Rice Country