Question

In your own words, explain what the Ricardian Model is about. If you were the ruler of a country, would you follow the Ricardian Model? Yes or no? Explain.

Answer 1

The Ricardian Model accepts that there are two nations, delivering two merchandises, utilizing one factor of generation, typically labor. The model is a general balance model in which all business sectors (i.e., merchandise and factors) are consummately focused.

• There are just 2 nations.
• They produce 2 products.
• The process of production requires just 1 information, work, which is constrained in the sum in the two nations and is superbly stable (for example severe fringe control).
• The opportunity cost between the merchandise is steady in every nation. (Graphically, the creation of plausibility wilderness is a straight line.)
• There is neither exchange cost nor transportation cost.

I would not use this model because of the following limitations:

The model is restricted in a few different ways:

• Having just 1 factor of creation is too oversimplified a perspective on assembling.
• In genuine world, no nation creates just the merchandise where they have a similar bit of leeway. Opportunity costs between products are probably not going to be steady, however, they ought to rather be expanding.
• Most essentially, the model doesn't clarify the wellspring of similar bit of leeway: for what reason can a few nations produce a few merchandises more economically than other countries?

Intending to these issues, researchers of worldwide exchange after Ricardo would make modifications on his model to think of better models, the most prominent being the Heckscher-Ohlin Model), which permits numerous components of the creation and clarifies the wellspring of a near bit of leeway by the relative bounty of assets.