Ricardian model
The Ricardian model is a model used in economics, named after David Ricardo. It is an easy way to explain trade between two countries, and the resulting gains. The model only uses workforce productivity to explain differences in international trade. Comparative advantages result from the difference of a single economic factor, that is labor. Workforces in different countries have different levels of productivity, and the resulting opportunity costs are different. In this regard, Ricardo used the ideas of Adam Smith regarding Absolute advantage, and developed them further. The model is described in Ricardo's main work, On the Principles of Political Economy and Taxation, published in 1817.
Ricardian Model Media
David Ricardo
Graph illustrating Ricardo's example:In case I (diamonds), each country spends 3600 hours to produce a mixture of cloth and wine.In case II (squares), each country specializes in its comparative advantage, resulting in greater total output.
The demand for cloth relative to wine decreases with the relative price of cloth in terms of wine; the supply RS of cloth relative to wine increases with relative price. Two relative demand curves RD_1 and RD_2 are drawn for illustrative purposes.
The blue triangle depicts Home's original production (and consumption) possibilities. By trading, Home can also consume bundles in the pink triangle despite facing the same productions possibility frontier.
