Trade and Technology: The Ricardian Model - Faculty
Trade and Technology: The Ricardian Model - Faculty
Trade and Technology: The Ricardian Model - Faculty
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Autarky: Prices <strong>and</strong> wages<br />
International Commercial Policy<br />
<strong>The</strong> <strong>Ricardian</strong> <strong>Model</strong><br />
Let P C be the price of cheese <strong>and</strong> P W be the price<br />
of wine.<br />
Because zero profits imply that revenues equal the<br />
wage bill, hourly wages of cheese makers are equal to<br />
the market value of the cheese produced in an hour:<br />
P C /a LC . Similarly, hourly wages of wine makers are<br />
equal to the market value of the wine produced in an<br />
hour: P W /a LW.<br />
Because workers like high wages, they will work in the<br />
industry that pays a higher hourly wage.<br />
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