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In the Ricardian model, suppose that Home has a MPL = 2 in Cloth and MPL = 4 in Wheat. Foreign has a MPL=2 in Cloth and MPL=6 in Wheat

/in /by

In the Ricardian model, suppose that Home has a MPL = 2 in Cloth and

MPL = 4 in Wheat. Foreign has a MPL=2 in Cloth and MPL=6 in Wheat. Suppose also that the price of Wheat is $1 (per bushel). When the two countries trade and fully specialize, we can deduce that the new price of Cloth is:

-between $0.66 (i.e. two thirds) and $0.5
-between $0.5 and $1
-between $1.5 and $2
-between $2 and $3

 
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