One Country's International Trade Equilibrium
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The one country model of international trade equilibrium assumes there is a competitive world market and examines a country's production, consumption and trading choices. The simple model of comparative advantage assumed there are two countries, two goods produced with constant opportunity costs and, it does not specify the demand for the product. The one-country international trade equilibrium model includes community indifference curves (denoted CIC, suggested to show demand) to reveal preferences in consumption and production possibilities frontiers (PPF) with increasing opportunity costs in production.
An international trade equilibrium established in either country is specified using the classical Ricardian assumptions of free trade (and comparative advantage). The autarky position is a point associated with the intersection of a stylized system of supply and demand --- the point of tangency between the highest CIC and the PPF. Production of the good with comparative advantage is increased until the limits to specialization are obtained when the supply (OC) price rises to equal the world price --- the point of tangency between the world price segment and the PPF.