ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The Ricardian model of international trade attempts to explain the difference in comparative advantage on the basis of technological difference across the nations. The technological difference is essentially supply side difference between the two countries involved in international trade.

Detailed explanation-2: -The Ricardian Model describes a world in which goods are competitively produced from a single factor of production, labor, using constant-returns-to-scale technologies that differ across countries and goods.

Detailed explanation-3: -This model explains how the level of a country’s technology affects the wages paid to labor, such that countries with better technologies have higher wages. This, in turn, helps to explain how a country’s technology affects its trade pattern, the products that it imports and exports.

Detailed explanation-4: -” Differences in technology give rise to differences in relative costs, and are a source of comparative advantage. “ These technological differences are reflected in differences in the productivity of labor. This model can be used also to explain wage disparities across countries.

Detailed explanation-5: -For example, the Ricardian model of trade, which incorporates differences in technologies between countries, concludes that everyone benefits from trade, whereas the Heckscher-Ohlin model, which incorporates endowment differences, concludes that there will be winners and losers from trade.