Purchase Solution

a simple Ricardian model

Not what you're looking for?

Ask Custom Question

Please see attached file for full problem description.

Suppose that the supply sides of France, Germany and Italy are each described by a simple Ricardian model with two goods, A and B. The technology is as follows:

Labor Needed
A B Labor
France 4 2 200
Germany 1 1 100
Italy 2 4 200

i. Who has a comparative advantage in what?

ii. Draw the world PPF and describe the efficient patterns of specialization.

iii. Describe the free-trade equilibrium if everyone always consumes equal amounts of A and of B. Who gains and loses, who produces and trades what, what are the relative prices?

2. Suppose that the supply sides of France and Italy are each described by a simple Ricardian model with two goods, A and B. The technology is as follows.

A B Labor
France 4 2 200
Italy 2 4 200

i Who has a comparative advantage in what? Who has an absolute advantage in what?

ii Draw the world PPF and describe the efficient patterns of specialization.

Attachments
Purchase this Solution
Solution Preview

1.

Comparative advantage is simply the opportunity cost of the goods in each country. So in France, we have the opportunity cost of good B at 2 units of good A (since it can produce twice as many As for each B). In Germany, the opportunity cost in is 1 for both products. And in Italy, it is ½ A for each B. So clearly Italy is the best suited to produce good B. France has the comparative advantage in good A.

ii. See the attached file "PPFs" for PPF of each country.

We know that only France and Italy have comparative advantage, so we need to add their PPFs first. This can be done simply by noticing that when completely specialized, they will each produce 100 units. This creates a kink in the world PPF at this point. The lines which join this point to the axis are the slopes of the respective PPFs - ...

Purchase this Solution
Free BrainMass Quizzes
Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

View More Free Quizzes
Related BrainMass Solutions

  • Why do people trade?

    Ricardian Model: The Ricardian model is the most simplistic and most fundamental model of global trade that we have. The simple Ricardian model has only one manufacturing contribution, labor.

  • economics

    Comments: For the discussion of the Ricardian model, and the Heckscher-Ohlin Model, first explain the models in simple terms.

  • Pattern of trade is guided by the factors of production

    The Ricardian model emphasizes on theory of comparative advantage, viewed to be the most important concept in international trade theory. In a Ricardian model, countries specialize in producing what they produce best.

  • Economics : key information

    There is a difference between the theories provided by both the Ricardian model and the Heckscher-Ohlin Model.

  • Comparative advantage explained in this solution

    Suppose that the supply sides of France and Italy are each described by a simple Ricardian model with two goods, A and B. The technology is as follows.

  • Not a ZERO - SUM - GAME, swim or sink end result is same

    In a Ricardian model, countries specialize in producing what they produce best.

  • Ricardian model

    378877 Insight into Ricardian Model Describe how relative prices for goods change in the Ricardian model when trade occurs. Describe how relative prices for goods change in the Ricardian model when trade occurs.

  • International Trade Theory

    How does the Heckscher-Ohlin theory differ from Ricardian theory in explaining international trade patterns? The Heckscher-Ohlin model incorporates a number of assumptions of the production process omitted by the simple Ricardian model.

  • International Economics Questions

    (selected) Heckscher-Ohlin theory Ricardian model Resource endowment Theory Gravity model 5.

  • International trade inequality and the Ricardian model

    149676 Ricardian Model (developing & industrialized countries) In the light of the Ricardian model, how might you evaluate the claim by developing countries that they are at a disadvantage in trade with powerful industrialized countries?

View More Related Solutions