Question
Suppose you and a friend are studying the Ricardian Model of Specialization and Trade with two countries, two goods, and constant opportunity costs.Your friend says
Suppose you and a friend are studying the Ricardian Model of Specialization and Trade with two countries, two goods, and constant opportunity costs.Your friend says "This model predicts that each country will specialize in producing a single good, which means devoting all of its resources to producing that good only. In reality, most countries produce at least a little bit of each of the goods its population wants to consume, rather than all of one thing and none of the others."
Use the concept of increasing opportunity costs to explain why the model with constant opportunity costs differs from real-world observations.
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