Theory of Reciprocal Demand Ricardian Trade Model

Subject: Consumer Behavior

Paper Model: APA

Paper Type: Essay

Total Words: 1576

Document Outline

  • Comparative Advantage
  • Factor Endowment Theory
  • Factor price equalization
  • STOLPER Samuel Theorem

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Define & explain the following terms and concepts and create example s to demonstrate

Theory of Reciprocal Demand Ricardian Trade Model

Ricardian model is an international trade model that let us understand the difference in comparative advantages. These advantages are based on the different technological aspects in the different countries that make them difference from each other regarding the trade. For example, if UK is providing imperious clothing at cheaper rates as compared to France which produces best quality wine at lower rates, it allows both countries to trade, which explains that countries depend on each other for trade based on difference in their comparative advantages.

  • Comparative Advantage

This is an economic law that elaborates the different potential gains for different individuals with trade. These potential gains can also be for firm and nation if they create the different products with their technological advancements and difference from the other countries. For example, if a cruise company has comparative advantage for being more closely situated near port which encourages it to be more productive, similarly, of US can manufacture pharmaceutical products lower opportunity costs, as compared to Germany, which can produce automobiles at lower opportunity cost, both should focus in the field they have comparative advantage. 

  • Factor Endowment Theory

This theory is related to the land, capital labor and entrepreneurship. All these factors are used for producing or manufacturing the different products for the customers. The more these factors a country have the more they will be productive and prosperous. For example, as France has great wine yards, Germany can produce efficient vehicles, Italy can produce best olives, and India can produce spices, all these products can contribute towards the GDP and prosperity of the country.

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