复旦国际贸易英文课件02.pptVIP

Ricardian Model Opportunity Cost and Prices The slope of the PPF reflects the opportunity of producing one more bushel of wheat. Under perfect competition the opportunity cost of wheat should equal the price of wheat. Price reflects the opportunity cost of a good. Ricardian Model Wages Determination of wages In competitive markets firms hire workers up to the point at which the hourly wage equals the value of one more hour of production. wage = P*MPL for each industry. In competitive markets, labor can move freely between industries. Wages must be equal across industries. If the wages were not the same in the two industries, laborers in the low-wage industry would have an incentive to move to the high-wage industry. Equalization of wages implies that: This is the relative price of wheat. Cost of wheat in terms of cloth. Ricardian Model The Foreign Country Assume Foreign’s technology is inferior to Home’s. Foreign has an absolute disadvantage in producing both wheat and cloth as compared to Home. Foreign Production Possibilities Frontier Assume a Foreign worker can produce one bushel of wheat or one yard of cloth. MPL*W = 1, MPL*C = 1 Assume there are 100 workers available in Foreign. Ricardian Model Figure 2.3 Ricardian Model Cloth (1 Yard) Wheat (1 Bushel) Home 2 Bushels of Wheat ? Yard of Cloth Foreign 1 Bushel of Wheat 1 Yard of Cloth Comparative Advantage Given the opportunity cost information, we can determine comparative advantages in each country for each good. The table below shows the opportunity cost of each good for both countries: Ricardian Model Comparative Advantage A country has a comparative advantage in a good when it has a lower opportunity cost of producing than another country. By looking at the chart we can see that Foreign has a comparative advantage in producing cloth. Foreign’s Opportunity cost of cloth is lower. Home has a comparative advantage in producing wheat. Home’s opportunity cost of wheat is lower. Ricardian Model Equilibrium