Ricardo Model

The Ricardo Model, developed by economist David Ricardo, explains how countries benefit from specializing in producing goods where they have a comparative advantage—meaning they produce at a lower opportunity cost than others. By focusing on these goods and trading with each other, countries can increase overall efficiency and wealth. Essentially, each nation should produce what it’s relatively better at, and trade for what it’s less efficient at, leading to more goods and benefits for all involved. This model underscores the economic gains from international trade based on differences in production efficiencies.