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Trade and Technology: The Ricardian Model - Faculty

Trade and Technology: The Ricardian Model - Faculty

Trade:

Trade: Equilibrium prices (cont.) International Commercial Policy The Ricardian Model Now, the relative demand curve depicts how the world demand of cheese relative to wine varies with the world price of cheese relative to of wine. It is again downward sloping because of substitution effects. In fact, it is identical to the relative demand curve derived for the autarky case if preferences are the same in both countries and relative demand is independent of income. This is usually assumed in basic trade models for simplicity. 36


Trade: Equilibrium prices (cont.) 37
 Relative price of cheese, P C /P W a * LC /a* LW a LC /a LW Copyright © 2009 Pearson Addison-Wesley. All rights reserved. L/a LC L * /a * LW RD International Commercial Policy The Ricardian Model RS Relative world quantity of cheese, Q C + Q * C Q W + Q * W

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