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Trade and Technology: The Ricardian Model - Faculty

Trade and Technology: The Ricardian Model - Faculty

Autarky: Pattern of

Autarky: Pattern of production (cont.) 24
 Relative price of cheese, P C /P W a LC /a LW International Commercial Policy The Ricardian Model RS Relative domestic quantity of cheese, Q C Q W

Autarky: Equilibrium prices International Commercial Policy The Ricardian Model To determine equilibrium prices, we need to combine this relative supply curve with a relative demand curve. Here, the relative demand curve depicts how the domestic demand for cheese relative to wine varies with the price of cheese relative to wine. It is much easier to derive. It is downward sloping because of substitution effects. As the relative price of cheese rises, consumers tend to purchase less cheese and more wine so that the relative demand for cheese falls. 25

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