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Ricardian Model: Comparative Advantage Analysis

The document outlines the Ricardian Model of Comparative Advantage, detailing the production capabilities of two countries, Home and Foreign, in producing apples and bananas. It includes calculations for opportunity costs, production possibility frontiers, and the construction of a world relative supply curve. Additionally, it discusses the equilibrium relative price of apples and demonstrates how both countries benefit from trade based on their comparative advantages.

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naruto uzumaki
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14 views7 pages

Ricardian Model: Comparative Advantage Analysis

The document outlines the Ricardian Model of Comparative Advantage, detailing the production capabilities of two countries, Home and Foreign, in producing apples and bananas. It includes calculations for opportunity costs, production possibility frontiers, and the construction of a world relative supply curve. Additionally, it discusses the equilibrium relative price of apples and demonstrates how both countries benefit from trade based on their comparative advantages.

Uploaded by

naruto uzumaki
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Ricardian Model of Comparative Advantage:

1. Home has 1,200 units of labor available. It can produce two goods, apples and bananas. The
unit labor requirement in apple production is 3, while in banana production it is 2.
a. Graph Home’s production possibility frontier.
b. What is the opportunity cost of apples in terms of bananas?

2. Home is as described in problem 1. There is now also another country, Foreign, with a labor
force of 800. Foreign’s unit labor requirement in apple production is 5, while in banana
production it is 1.
a. Graph Foreign’s production possibility frontier.
b. Construct the world relative supply curve.

3. Now suppose world relative demand takes the following form:


Demand for apples / demand for bananas = price of bananas / price of apples
a. Graph the relative demand curve along with the relative supply curve.
b. What is the equilibrium relative price of apples?

4. Describe the pattern of trade and show that both Home and Foreign gain from trade.

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