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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International Commercial Policy<br />
<strong>The</strong> <strong>Ricardian</strong> <strong>Model</strong><br />
<strong>Trade</strong>: Gains from trade (cont.) - example<br />
With trade, the equilibrium relative price of cheese must<br />
be between aLC /aLW = 1/2 <strong>and</strong> a * LC /a* LW = 2.<br />
<strong>The</strong> exact price will depend on the details of the relative<br />
dem<strong>and</strong> curve.<br />
For simplicity, suppose that P C /P W = 1 in equilibrium.<br />
<strong>The</strong>n, one kg of cheese trades for one liter of wine.<br />
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