Mundell-Fleming Model, Case Study Example

What are the relative prices of pencils and pens in each country?

Considering labor options, the possible pricing for pencils and pens for each country would depend on the rate of units the businesses are able to produce. Practical options of pricing impose on the fact by which the balancing elements impacting the production of the items released for trading options.

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What happens to the relative prices and production possibility frontiers in each country if they begin trading?

Once trading is undergone by the countries based on their pencil and pen production, it could be realized that understanding the value of each item would be dependent on the condition of competition that occurs among the individual organizations operating in the industry. With competition measured accordingly, the competitive sense of pricing could be set accordingly.

Does this simple example prove or disprove the Ricardian model of international trade?

This case does prove that the Ricardian model of international trade does impose a sense of good indication of how the international trade occurs as it embraces a sense of complete distinction on how pricing operations are undergone based on how organizations and industries perform in each market. This is where the assumption of developmental economic systems could be seen to have an impact on the overall being of the nation’s economy and how it is able to lead the country and its nation towards a distinct sense of progress.