In the neoclassical model free trade not only equalises the relative commodity price in the two countries but also equalises the relative wage rate. 

The neoclassical model of international trade is a fundamental economic theory that provides insights into the patterns and gains from trade between two countries. It is based on the principle of comparative advantage, which suggests that nations should specialize in producing goods in which they have a lower opportunity cost and engage in trade to maximize efficiency and welfare. The model assumes perfect competition, full employment, and constant returns to scale.

One of the core propositions of the neoclassical model is that free trade has the potential to equalize not only the relative commodity prices but also the relative wage rates between two trading countries. This essay aims to explore this proposition in detail, discussing the underlying assumptions, theoretical foundations, and the empirical evidence supporting or challenging the idea.

The Equalization of Relative Commodity Prices

In the neoclassical model, trade occurs between two countries, each producing two goods, and assumes that there are no transportation costs or trade barriers. The theory suggests that in a free trade scenario, the relative commodity prices of the traded goods will eventually equalize between the two countries. To understand this concept, let's consider a simple example with two countries, A and B, producing wine and cheese:

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