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Flashcards in The Ricardian Model Deck (8)
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1

What are the assumptions of the ricardian model?

- Two countries (Home & Foreign), one factor of production (Labor), two goods ( Ex. Wine & Cheese)
- Constant returns to scale in production
- Different labor productivities
- Perfect competition prevails in all markets
- Labor is perfectly mobile within countries but not across countries.

2

Vad är L respektive L*?

L=Total labor supply in Home
L*=Total labor supply in Foreign

3

What is comparative advantage?

When a country is relatively good at producing a good.

4

When do you have comparative advantage?

When you have the lower opportunity cost of that good than the other country.

5

What is opportunity cost?

It is defined in the amount of the other good. The opportunity cost of good x is the amount of good y that has to be given up to produce one more unit of x.

aLX/aLY

6

When does home have the comparative advantage in good x?

aLX/aLY

7

What is the unit labour requirement?

number of hours of labor required to produce one unit of output (aLC)

8

Beskriv product possibility frontier?

Beskriver kombinationer av mängden kvantitet av varje vara som kan produceras ex. 1 ost och 2 liter vin