The following are the assumption in Ricardo's Theory of International Trade:
i) Trade between two countries takes place on the basis of the barter system.
ii) Technological knowledge is unchanged.
iii) Labor is the only factor of production.
iv) All labor units are homogeneous.
v) Factors of production are perfectly mobile within each country but are perfectly immobile between the two countries.
vi) No transport costs are involved in carrying trade between the two countries.
Explanation:
David Ricardo was one of the famous political economists who lived in London. He was known for his theory of international trade. He also proposed theory on wages and profit and theory of comparative advantage.
The Ricardian theory was formulated based on the differences in technology across nations. His also discovered law for diminishing marginal returns. He always focused on the advantage of nation. According to Richardo, the good should be produced more efficiently with relatively less efficiency compared to other nation.