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:
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.