Two Country Ricardo Model Inputs England-Portugal Wine-Cloth

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Presentation transcript:

Two Country Ricardo Model Inputs England-Portugal Wine-Cloth Productivities q(i,j)=e(i,j) li,j Spending Preferences Cobb Douglas d(i,j) Size of Labor Forces L1, L2

Outputs Which goods are made in which Countries Quantities Consumed Prices National Incomes Utilities (weighted measure of consumption)

Three Different Equilibria as Portugal Develops Demand (Cloth, Wine) = (2/3,1/3) Starting Productivities (Cloth , Wine): England (1.0, 0.4) Portugal (0.4, 1.0) Then Portugal Improves in Cloth, increasing from 0.4 to 0.7 to 1.0 3

Portugal’s Productivity in Cloth Improves Effect on Portugal 4

Portugal’s Productivity in Cloth Improves Effect on England 5

Three More Equilibria -England

Three More Equilibria - Portugal

Point Pair Shows Equilibrium Income Share, and Utilities of Country 1 and Country 2 Z1 is Country 1 Income

Previous Equilibria

More Equilibria

Regions of Equilibria and Their Boundaries

World Equilibria Boundary

Three Important Points

6 Good Model

11 Good Model