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Trade and Technology: The Ricardian Model - Faculty

Trade and Technology: The Ricardian Model - Faculty

Comparative advantage

Comparative advantage International Commercial Policy The Ricardian Model A country has a comparative advantage in producing a good if the opportunity cost of producing the good is lower in that country than it is in other countries. In the above example, Ecuador has a comparative advantage in Rose production and the U.S. has a comparative advantage in computer production. Notice that trade between the U.S. and Ecuador can benefit both countries if they export the good in which they have a comparative advantage. 10


Comparative advantage (cont.) Millions of Roses Thousands of International Commercial Policy The Ricardian Model Computers U.S. -10 +100 Ecuador +10 -30 Total 0 +70 11


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