TheRicardianModelwithaContinuumofGoods.pptVIP

The Ricardian Model with a Continuum of Goods * a(z)=unit labor requirement at home a*(z)=unit labor requirement abroad A(z)=a*(z)/a(z) ratio of Home to Foreign productivity of labor in good z. A(1)A(2)A(3)... A(z) relative wages w/w* z Which goods will be produced at home? Z is produced at Home if wa(z)w*a*(z) or w/w*a*(z)/a(z)=A(z) Demand Side = fraction of income spent on Home-made goods domestic income world income relative wage w/w* A(z) z GAINS FROM TRADE relative wage w/w* A(z) z I. Autarky Country H II. Free Trade Country H’s Exports Country H’s Imports Country F’s Exports Cou