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Trade and Technology: The Ricardian Model - Faculty

Trade and Technology: The Ricardian Model - Faculty

Opportunity cost (cont.)

Opportunity cost (cont.) International Commercial Policy The Ricardian Model For example, a limited number of workers could be employed to produce either roses or computers. The opportunity cost of producing an additional computer is the required reduction in the production of roses. Similarly, the opportunity cost of producing a given amount of computers is the amount of roses that could have been produced with the same resources. 6


Opportunity cost (cont.) International Commercial Policy The Ricardian Model Suppose that in the U.S. 10 million roses could be produced with the same resources that could produce 100,000 computers. Suppose that in Ecuador 10 million roses could be produced with the same resources that could produce 30,000 computers. What is the opportunity cost for Ecuador if it decides to produce roses? 7


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