The Ricardian Model

Question 1

What are the assumptions of the ricardian model?

Answer 1

• Two countries (Home & Foreign), one factor of production (Labor), two goods ( Ex. Wine & Cheese)
• Constant returns to scale in production
• Different labor productivities
• Perfect competition prevails in all markets
• Labor is perfectly mobile within countries but not across countries.

Question 2

Vad är L respektive L*?

Answer 2

L=Total labor supply in Home

L*=Total labor supply in Foreign

Question 3

What is comparative advantage?

Answer 3

When a country is relatively good at producing a good.

Question 4

When do you have comparative advantage?

Answer 4

When you have the lower opportunity cost of that good than the other country.

Question 5

What is opportunity cost?

Answer 5

It is defined in the amount of the other good. The opportunity cost of good x is the amount of good y that has to be given up to produce one more unit of x.

aLX/aLY

Question 6

When does home have the comparative advantage in good x?

Answer 6

aLX/aLY

Question 7

What is the unit labour requirement?

Answer 7

number of hours of labor required to produce one unit of output (aLC)

Question 8

Beskriv product possibility frontier?

Answer 8

Beskriver kombinationer av mängden kvantitet av varje vara som kan produceras ex. 1 ost och 2 liter vin