The Effect of Preference on Comparative Advantage Model

It is well accepted that the preference of consumers together with comparative advantage will influence the equilibrium of specialization and consumption utilities of consumers. In this paper, we analyze how preference affects consumption, term of trade and consumption utility under the framework of comparative advantage with only one input. We assume that the labour supply difference between countries is not too big, under which condition complete specialization can be achieved. The more consumers in one country prefer importing product, the worse will be the term of trade to the country. The more consumers in one country prefer one product, the more will they consume this product and the less for the other product, which in consequence affects the consumption utility of them.