Review 181

Review 181 - Review 1 Ricardian Framework a Assumptions 1...

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1. Ricardian Framework a) Assumptions 1. One-factor of production, No distributional issues 2. Technology differs across countries 3. Shows why gains from trade, direction of trade comparative advantage 4. Even countries with no abs. adv. Gain from trade 5. How many ways can you illustrate gains from trade? Two ways i. Trade = indirect method of production a. County can directly produce Wine, but if it’s better at Cheese, then it can “indirectly” produce wine by trading (more efficient) ii. Consumption possibilities > Production possibilities a. Each country gained range of choice, residents better off b. PPF is a straight line b) ULR – unit labor requirement (technology) c) Questions to ask: 1. What is relative price of cheese in terms of wine (gal/lb) 2. Who has abs. adv? Comp. adv? 3. Where will post-trade prices fall? 4. At what price: i. Do we have complete specialization? ii.
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Review 181 - Review 1 Ricardian Framework a Assumptions 1...

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