Question

Given your recent exposure to the Ricardian model, answer the following questions

1. Can one country have comparative advantage in all goods? Why or why not?

2. Suppose it has been determined that a country has comparative advantage in the production of Adamantium and a comparative disadvantage in vibranium, i. Does the Ricardian model predict that the wages in the Vibranium industry will increase? Why or why not? ii. Does the Ricardian model predict partial specialization in the Vibranium industry? Why or why not?

Answer 1

(1.) NO, its not possible for a country to have comparative advantage in all goods.

Explanation

According to the Ricardian model, a country can not have comparative advantage in all goods. It can be easily understand by following example:

(2.)

(i) If a country has comparative advantage in the production of Adamantium and a comparative disadvantage in vibranium, the Ricardian model predict that the wages in the Vibranium industry will increase.

Explanation

According to Ricardian model, a country will specialize in the good in which it has comparative advantage as compared to other countries. So, when a country has comparative advantage in the production of Adamantium and a comparative disadvantage in vibranium, it will  specialize in the production of Adamantium. In such situation, there is shortage of Adamantium in economy. Which lead to increased demand for Adamantium and thereby, increased demand for labor cause wages in the Vibranium industry will increase.

(ii.) No, the Ricardian model does not predict partial specialization in the Vibranium industry.

Explanation

According to Ricardian model, specialization in one good lead to realization of high level of welfare for the economy. In this case, If country tries to partial specialization in the Vibranium industry, cause in reduction in welfare.