Flashcards in The Ricardian Model Deck (8)
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.
Vad är L respektive L*?
L=Total labor supply in Home
L*=Total labor supply in Foreign
What is comparative advantage?
When a country is relatively good at producing a good.
When do you have comparative advantage?
When you have the lower opportunity cost of that good than the other country.
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.
When does home have the comparative advantage in good x?
What is the unit labour requirement?
number of hours of labor required to produce one unit of output (aLC)