Ricardian Trade Model - How to draw the supply function and derive World Equilibrium
How do we draw the world supply and world demand in the Ricardian trade Model? Exam question - let's solve a question with two countries — unit labour requirement - learn step by step how to draw the relative world supply step function and relative demand function, and find the equilibrium world price.
work out comparative advantage and terms of trade.
Full Notes: https://nishamalhotra.com/trade-polic...
✅ What you will learn:
How to set up a two-country Ricardian trade model
How to calculate the opportunity cost of production
How to identify comparative advantage from labour requirements
How to derive and plot the world relative supply function
Why the world supply curve has a vertical segment and horizontal segments
How to derive the relative demand function from a given equation
How to calculate and plot relative demand (apples vs. bananas)
How the world price Pw is determined at the intersection of supply and demand
What does it mean when the world price equals the home country's autarky price
How specialization is determined for Home and Foreign countries
🎓 Part of a Ricardian Model of Trade lecture series.
Important Note: When a large country trades with a small country, the small country would specialize in one good, while the large country would produce both goods.
📌 Ideal for students studying international trade theory,
international economics, or advanced microeconomics, at the
university level.
🔍 Topics: Ricardian model of trade | world supply and demand |
relative supply function | relative demand function |
world price determination | autarky price | comparative advantage |
opportunity cost trade | specialization in trade |
unit labour requirements |
International Trade Theory |
world Supply Function in the Ricardian model of trade is a Step function