These two basic assumptions of David Ricardo have played an important role in two-sector models:
A) rents and taxation.
B) buyers and sellers.
C) diminishing returns and labor surplus.
D) constant returns to scale and economic efficiency.

Question

Quizplus · Accepted Answer

The two basic assumptions of David Ricardo are diminishing returns and labor surplus, which means that as production increases, the input of labor also increases but with diminishing returns. This is important in two-sector models to explain the distribution of income between the agricultural and industrial sectors, where agriculture faces diminishing returns and thus, lower wages, while the industrial sector benefits from higher productivity and higher wages due to the surplus of labor from the agricultural sector. Rents and taxation (A) are not directly related to Ricardo's assumptions, while buyers and sellers (B) and constant returns to scale and economic efficiency (D) are not the core assumptions of Ricardo's theory.

These Two Basic Assumptions of David Ricardo Have Played an Important