ricardoexample2 - Ricardian Model Example used in lecture :...

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Ricardian Model Example used in lecture : Consider a model with two countries (Home and Foreign (*) , two goods (Textiles and Soy) and one input (Labor) . The production technologies are specified by the following unit labor requirements: Home Foreign (*) Soy 2 3 Textiles 1 6 Labor endowments in each country: 60 units . Preferences are “nice” and identical across countries. Assume that Textiles is used as a numeraire (p T =1) and the free trade prices are: p S / p T = 1.5 Results: Home Home Autarky Free Trade Foreign (*) Foreign (*) Autarky Free Trade p S / p T 2 1.5 ½ 1.5 w / p T 1 1 1/6 ½ w / p S ½ 0.6 1/3 1/3 p T 1 1 1 1 p S 2 1.5 ½ 1.5 w 1 1 1/6 ½ AC T 1 1 1 3 AC S 2 2 ½ 1.5 Remarks: (1) Trade arises because of differences in technology. (2) Under Free trade each country exports the commodity that they have a Comparative Advantage on (i.e. Home exports Textiles and Foreign exports Soy).
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This note was uploaded on 08/08/2008 for the course ECON 464 taught by Professor Maria during the Spring '08 term at University of Wisconsin.

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ricardoexample2 - Ricardian Model Example used in lecture :...

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