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The Ricardian Trade Model

In: International Trade and Global Macropolicy

Author

Listed:
  • Farrokh Langdana

    (Rutgers Business School)

  • Peter T. Murphy

Abstract

The journey into the main “engine room” of free trade, the Ricardian trade model, begins with a very necessary overview of some essential microeconomic building blocks, starting with the production possibilities frontier (PPF). Consumer preferences as represented by indifference curves are explained in detail with examples. The autarky production and consumption points are determined by the intersection of the production possibilities frontier with the highest possible indifference curve. Application of the Ricardian trade model shows that two trading countries can both consume on a higher indifference curve than was possible without trade. Through intra-industry trade, even countries with the same factor endowments and tastes can benefit from open trade.

Suggested Citation

  • Farrokh Langdana & Peter T. Murphy, 2014. "The Ricardian Trade Model," Springer Texts in Business and Economics, in: International Trade and Global Macropolicy, edition 127, chapter 0, pages 19-45, Springer.
    • Handle: RePEc:spr:sptchp:978-1-4614-1635-7_3
    DOI: 10.1007/978-1-4614-1635-7_3
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