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Discussion Questions

Discussion Questions - Discussion Questions Exercise 1 Cons...

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Discussion Questions Exercise 1 : Cons: The Ricardian model predicts an extreme degree of specialization that we do not observe in the real world. It also assumes that countries as a whole will always gain from trade; when in fact international trade has strong effect on income distribution. The Ricardian model allows no role for differences in resources among countries as a cause of trade, which misses an important aspect of the trading system The model also neglects the possible role of economies of scale as a cause of trade, which leaves it unable to explain the large trade flows between apparently similar nations. Pros: The basic prediction of the Model, in which countries should tend to export those goods in which their productivity is relatively high, has been strongly confirmed. The most important part: Productivity differences play an important role in international trade and that it is
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