The Ricardian Model in International trade

The Ricardian Model is based on

*Technological differences (differences in labour productivities) between countries
*Concepts of opportunity cost and comparative advantage.

  • A simple example

Unit labour requirement (number of hours) to produce ONE unit of each good:
                                CHEESE               WINE
ENGLAND             2 (hours)               8 (hours)
PORTUGAL           4 (hours)               2 (hours)

England has an ABSOLUTE ADVANTAGE in producing cheese.
Portugal has an ABSOLUTE ADVANTAGE in producing wine.