International Trade

Ricardo Model

Premise of the model

* 2-country (Home and Foreign), 2-good (X and Y), 1-factor (Labour) economy.
* Constant Returns of Scale (CRS).
* Labour can freely move between sectors in each country but cannot move between countries.
* Price of a good is the value of labour input.

Outline:

* The Model
* Comparative Advantage
* Facts derived from the Model

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