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The Ricardian Model

PPF H. PPF F. PPF F. Relative price. Relative price. Relative price. R S. R D. The pattern of trade The gains from trade. equilibrium. The Ricardian Model. Trade in a One-Factor World. Determining the Relative Price After Trade

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The Ricardian Model

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  1. PPFH PPFF PPFF Relative price Relative price Relative price R S R D The pattern of trade The gains from trade equilibrium The Ricardian Model

  2. Trade in a One-Factor World • Determining the Relative Price After Trade • What determines the relative price (e.g., PC / PW) after trade? • To answer this question we have to define the relative supply and relative demand for cheese in the world as a whole. • The relative supply of cheese equals the total quantity of cheese supplied by both countries at each given relative price divided by the total quantity of wine supplied, (QC+ Q*C)/(QW+ Q*W). (本國判別式; 外國判別式) • The relative demand of cheese in the world is a similar concept.

  3. PC PW aLC aLW • If > PC PW aLC aLW = • If PC PW PC* PW * PC* PW * PC* PW * aLC *aLW * aLC *aLW * aLC *aLW * aLC aLW • If • If • If • If < > < = 本國判別式和外國判別式 : then Foreign will specialize in the production of cheese. : then Home will specialize in the production of cheese. : then both goods be produced. : then Home will specialize in the production of wine. : then both goods be produced. 返回 : then Foreign will specialize in the production of wine.

  4. Relative price of cheese, PC/PW a*LC/a*LW RS 解釋 6/3=2 解釋 解釋 1解釋 RD 解釋 aLC/aLW 1/2 解釋 RD' L/aLC L*/a*LW 解釋均衡 Q' Relative quantity of cheese, QC + Q*C QW + Q*W Figure 2-3: World Relative Supply and Demand Trade in a One-Factor World 2解釋

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