Ricardian Model Flashcards
What is the main idea?
Trade is based on differences in labor productivity
What production factors are there in the model?
Labor only
How is the PPC in this model?
Straight line ( constant opportunity cost)
What are the gains from trade in this model?
Specialization based on comparative advantage due to productivity.
What income distribution effects are there on the production factors in this model?
No direct effect on income distribution
What trade patterns are explained in the model?
Trade between countries with different productivity levels
When is this model used?
To introduce the basics of trade theory and comparative advantage
Give and example of the model
Country A exports wine and country B exports cloth based on differences in labor productivity
What are the key assumptions in this model?
One factor (labor)
No transport costs
Homogenous goods (only difference is the price)
Why do countries trade with each other according to this model?
Countries gave different productivity in the production of goods
Does the stolper-samuelson theorem apply in this model?
No because the model does not include several production factors
According to this model what goods are exported ?
Countries export goods that they can produce at the lowest absolute cost
