... country (DC) trades with a Less Economically Developed Country (LEDC) its capital will more likely be machine intensive rather then human. However it may be still beneficial for the DC to trade with the LEDC in order to get products that are more labour intensive. Another assumption is that there are constant returns to scale, this is so that varying and increasing amounts of goods may be produced without diminishing effects which would affect the results on trade meaning that the more trade that takes place the less beneficial it becomes, due to diminishing marginal returns to scale. There are also no barriers to trade, such as tariffs and transport costs are also assumed as low or non-existent. This is so that trade is assumed as encourage and is in no way deterred form occurring. It is also a two good, two-country model in that each country produces to goods ...

See this essay or coursework document in full right now