International Economics - 9.7.07

International Economics - 9.7.07 - Ricardian Model-simplest...

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Ricardian Model -simplest model of trade David Ricardo – Politician who established the concept that trade is good. Key Idea – trade frees a country from having to consume only what it can produce. -buying a water bottle from the store is considered trade because I did not produce it, yet I consumed it. Early Trade Theory – Mercantilism (barter is a form of this) – 17 th and 18 th century, gold/silver was the unit of money. -accumulation of gold and silver indicated wealth Zero-sum game -Trade – exported goods with gold and silver -Policy – MAX exports, MIN imports -every time I give you something, I lose something of mine. So they wanted to minimize what they got from other people. -This is what David Ricardo believed. He tried to convince Britain to support and implement his theory and these were his assumptions in a true economic way. Assumptions : 1. perfect competition output input(factor) -many buyers and sellers -homogeneous goods and factors -knowledge of market conditions
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This note was uploaded on 04/03/2008 for the course ECON 300 taught by Professor Gang during the Spring '06 term at Rutgers.

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International Economics - 9.7.07 - Ricardian Model-simplest...

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