In the Ricardian model, we primarily work with relative prices and marginal products of labor. The relative price equals the reciprocal of the marginal product of labor ratio. We don’t usually need the prices of each good in our analysis, but in this model, we would like to determine absolute prices as well to fully illustrate arbitrage. Since the Ricardian model assumes only the relationship between ratios, we will first find them. As we can see, prices are equal to the marginal product of labor of the other good. We can multiply both prices by a coefficient, and nothing will change. If we multiply both the denominator and numerator by the same number, we can simply cancel it out anytime. However, such a transformation will help us distinguish absolute prices among MPLs. This step is not necessary.

In the Ricardian model, we primarily work with relative prices and the marginal products of labor. The relative price equals the reciprocal of the marginal product of labor ratio. We don’t usually need the prices of each good in our analysis, but we do need the MPL values for various formulas. Since the Ricardian model assumes only the relationship between ratios, we will first find them. As we can see, the marginal product of labor is equal to the price of the other good. We can multiply both prices by a coefficient, and nothing will change. If we multiply both the denominator and numerator by the same number, we can simply cancel it out anytime. However, such a transformation will help us distinguish absolute MPLs among prices.