The Ricardian Model
Countries trade in the Ricardian model to take advantage of what they produce most efficiently in order to optimize the utilization of resources. In the Ricardian model of trade both countries gain from free trade by focusing on what they produce most efficiently, where they can trade the surplus for other products that they do not produce as efficiently. The specific factors model is used to study the affect international trade as on the distribution of income by focusing on how changes in relative prices affect the factors of earnings. The specific factors model is used to demonstrate the effects of trade in which one factor of production is specific to an industry.
The Ricardian model tries to analyze the pattern of trade and what countries should specialize in producing when considering their comparative advantage. The Ricardian model states countries will produce what they are best at and not an array of various products; however, it does not consider factors such as the relative amount of capital and labor within a country. The specific factors model tries to analyzes who gains and who loses in trade and offers insights beyond the Ricardian model. The specific factors model analyzes how trade affects the earnings of labor, capital, and land by understanding how changes in relative prices affect these factors.
The main technical difference between the two models is the Ricardian model only has one factor of production, which is labor that is fixed in all countries, and with no distributional conflicts over gains in trade. In the specific factors model it assumes three factors and two goods, where one factor is assumed to be mobile across sectors, which is labor, while the two other factors are specific to the two goods being used.
The specific factors model is closer to the real world because the Ricardian model does not address the strong influence international trade has on the distribution of income nor does it accurately...