The Ricardian Trade Model

Farrokh Langdana and Peter T. Murphy
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Farrokh Langdana: Rutgers Business School

Chapter Chapter 3 in International Trade and Global Macropolicy, 2014, pp 19-45 from Springer

Abstract: Abstract The journey into the main “engine room” of free trade, the Ricardian trade model, begins with a very necessary overview of some essential microeconomic building blocks, starting with the production possibilities frontier (PPF). Consumer preferences as represented by indifference curves are explained in detail with examples. The autarky production and consumption points are determined by the intersection of the production possibilities frontier with the highest possible indifference curve. Application of the Ricardian trade model shows that two trading countries can both consume on a higher indifference curve than was possible without trade. Through intra-industry trade, even countries with the same factor endowments and tastes can benefit from open trade.

Keywords: Opportunity Cost; Free Trade; Comparative Advantage; Indifference Curve; Full Specialization (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sptchp:978-1-4614-1635-7_3

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DOI: 10.1007/978-1-4614-1635-7_3

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