Trade and Technology: The Ricardian Model - Faculty
Trade and Technology: The Ricardian Model - Faculty
Trade and Technology: The Ricardian Model - Faculty
You also want an ePaper? Increase the reach of your titles
YUMPU automatically turns print PDFs into web optimized ePapers that Google loves.
Autarky: Equilibrium prices (cont.)<br />
International Commercial Policy<br />
<strong>The</strong> <strong>Ricardian</strong> <strong>Model</strong><br />
Hence, the equilibrium relative price of a good equals<br />
the opportunity cost of producing that good in the<br />
absence of international trade.<br />
This is because relative prices must adjust so that<br />
wages are equal in the wine <strong>and</strong> cheese industries so<br />
that both wine <strong>and</strong> cheese are produced.<br />
If P C /a LC = P W /a LW � P C /P W = a LC/a LW workers will<br />
have no incentive to work solely in the cheese industry<br />
or the wine industry.<br />
27
Change language