Ricardian model

The Ricardian model focuses on comparative advantage and is perhaps the most important concept in international trade theory. In a Ricardian model, countries specialize in producing what they produce best. Unlike other models, the Ricardian framework predicts that countries will fully specialize instead of producing a broad array of goods. Also, the Ricardian model does not directly consider factor endowments, such as the relative amounts of labor and capital within a country.

Assumptions of the Ricardian model (1) Labor is the only primary input to production (labor is considered to be the ultimate source of value). (2) Constant Marginal Product of Labor (MPL) (Labor productivity is constant, constant returns to scale, and simple technology. (3) Limited amount of labor in the economy (4) Labor is perfectly mobile among sectors but not internationally. (5) Perfect competition (price-takers).

The Ricardian model measures in the short-run, therefore technology differs internationally. This supports the fact that countries follow their comparative advantage and allows for specialization.