explain the criticisms of haberler’s theory of opportunity cost of international trade??
Let us define the concept of opportunity cost first. In the context of production, the opportunity cost of producing a commodity (say X), is the quantity of another commodity (say Y), that must be sacrificed to produce one additional unit of X. According to the opportunity cost theory, a country with lower opportunity cost for a commodity has a comparative advantage in that commodity and a comparative disadvantage in the other. In his opportunity cost theory of international trade, Haberler has opposed Ricardo’s restrictive premise of labour theory of value. He has done this in favour of a more general framework without otherwise changing Ricardo’s basic argument. ‘The opportunity ‘cost theory of trade states that, it is the differences between costs which determine the relative prices of…
different commodities. Here, the term ‘cost’ does not refer to the amount of labour required to produce a particular commodity, but to the amount of alternative good that has to be forgone to produce that commodity. Stated differently, the value of each commodity is taken to be equal to its opportunity cost.
The opportunity cost theory has several limitations: a) It is based on