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    Ricardian Model

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    In 1975, wage levels in South Korea were roughly 5% of those in the United States. It is obvious that if the United States had allowed Korean goods to be freely imported into the United States at that time, this would have caused devastation to the standard of living in the United States because no producer in this country could possibly compete with such low wages. Discuss this assertion in the context of the Ricardian model of comparative advantage.

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    This assertion is not true according to the theory of comparative advantage. According to this theory, both countries would benefit if they could specialize in certain goods - goods that they can produce at a lower opportunity cost when compared to the other goods. In the example ...

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    The solution goes into a great amount of detail about the theory of comparative advantage. The concepts are very well explained and easy to understand. The solution can be followed very easily by anyone who has some understanding of the concepts beforehand. Overall, an excellent response to the question.

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