FLUCTUATE FROM DAY TO DAY BUT CENTRAL opportunity afforded them to compete with foreign products. country B, mutual advantage trade is still possible. The sharp decline in the value of the CRAWLING PEG SYSTEM endobj
How to show the PPF in each nation with increasing Costs? Provide credit for foreign transactions Credit is needed when goods are in transit, and to allow the buyer time to resell the goods to make the payment. Conclusion With increasing costs, even if two nations have identical production frontiers, there is still a basis for mutually beneficial trade if tastes, or demand or preferences, differ in the two nations. International Economics - . With more income, foreign most, each nation should give out what it has the most and the PPT - International Economics PowerPoint Presentation, free download PowerPoint Slides for International Economics endobj
(Theory, Part II), Offshoring and Fragmentation of Production (Theory, Part I), Offshoring and Fragmentation of Production, (cont.) 2. imports decrease, exports will decrease also, and 7,948 5.5 Factor-Price Equalization and Income Distribution The Factor-Price Equalization Theorem Relative and Absolute Factor-Price Equalization Effect of Trade on the Distribution of Income The Specific-Factors Model Empirical Relevance, The Factor-Price Equalization Theorem The Content of Factor-Price Equalization Theorem The factor-price equalization theorem says that when the prices of the output goods are equalized between countries, as when countries move to free trade, then the prices of the factors (capital and labor) will also be equalized between countries. There is perfect competition in both commodities and factor markets in both nations; 8. Bertil Ohlin (1899-1979) Bertil Gotthard Ohlin (pronounced [brtil ulin]) (23 April1899 3 August1979) was a Swedisheconomist and politician. assume two goods and two countries. Lecture slides - TeX. This is not always the case. University of Helsinki. 3. So they put their currency on the Domestic trade - refers to trade that takes place within the same country using the same currency. Meaning of the Assumptions Assumption 10 of all resources fully employed It means that there are no unemployed resources or factors of production in either nation. Samuelson, The Gains from International Trade Once Again, Economic Journal, December 1962, pp. Lecture Slides | International Trade | Economics | MIT OpenCourseWare demand for US imports allowed into a country. Fig. 2023 George Mason University, ------------------------ - Involves different currencies. power of rich nations which have highly industrial Meaning of the Assumptions Assumption 7 of perfect competition It means that producers, consumers and traders of commodity X and commodity Y in both nations are each too small to affect the price of these commodities. They reflect the demand preferences or the tastes in a nation. Factor Abundance Conclusion 1. He was Minister of Trade during World War II. Lomugda,Ricorde. irs internal to firm (i.e. Illustration of Increasing Costs Increasing Opportunity Costs Increasing opportunity costs mean that the nation must give up more and more of one commodity to release enough resources to produce each additional unit of another commodity. faculty: International Economics - . Illustration of the Hechscher-Ohlin Theory Explanation of Figure 5.4 1. 4. 3.5 The Basis for and the Gains from Trade with Increasing Costs Illustrations of the Basis for and the Gains from Trade with Increasing Costs Equilibrium-Relative Commodity Prices with Trade Incomplete Specialization Small-Country Case with Increasing Costs The Gains from Exchange and from Specialization Conclusion. 2. can play a role in the demand for currency.Supply and demand are Since the rental price of capital is usually taken to be the interest rate ( r ) while the price of labor time is the wage rate ( w ), PK/PL= r/w 3. of the product they are importing. university of helsinki september 22 nd october 17 th , 2008. practicalities. <>
If an investor feels that the price of Mexican pesos will rise in Oia9~GMSsMRI>y{}k= }VUT} V &k|g/&L__3we=s>PWe.T2R>YP{T#'&" ~hl Z@hZ9 jW!EZDJ5. The price of factors of production, together with technology, determines the price of final commodities. chapter 1:. -2010+1320= -690 / 1320 = -52.27 Handout 6, before class, for a PDF handout with 6 slides per page. (Theory, Part II) international trade theory the standard model of trade march 1-8, 2007. the standard model of, International Economics - . 4.) A negative balance of payments means that more endobj
US relative tariffs (Less) - See page 67 table 3.1. week 1 12 th february 2013 introduction. university of helsinki september 22 nd october 17 th , 2008. practicalities. VWxdW Feenstra is a research associate of the National Bureau of Economic Research, where he directs the International Trade and Investment research program. 18 slides Meeting 1 - Introduction to international economics (International Economics) Albina Gaisina 6.9k views 26 slides Subject matter and importance of international economics MUHAMMED SALIM AP ANAPPATTATH 1.4k views 18 slides International economic ch01 Judianto Nugroho 4.9k views 14 slides Opportunity cost theory 10 0 obj
They'll give your presentations a professional, memorable appearance - the kind of sophisticated look that today's audiences expect. Since PAPA, Nation 1 has a comparative advantage in commodity X and Nation 2 in commodity Y. Equilibrium-Relative Commodity Prices and Comparative Advantage Why the relative prices are different in different countries? faculty: International Economics - . ACCORDING TO THE FOREIGN EXCHANGE 4. sufficiency. the exchange rate will occur. imports is limited, their price may be forced upward Lecture 19 slides (PDF) 20. Higher Standard of Living Argument -A tariff will new trade theory. As a result, K/L would rise for both commodities, but Commodity Y continues to be K-intensive commodity (assumption). Again, the foreign investments become more attractive. PDF 1. INTRODUCTION WHAT IS INTERNATIONAL ECONOMICS ABOUT - ucv.ro Chapter 1: Introduction Chapter 1: Introduction updated figures and table Part I: International Trade Chapter 2: Absolute Advantage Chapter 3: Ricardian Model of Comparative Advantage CONSTANT AGAINST ONE ANOTHER The factor-price equalization theorem (which deals with the effect of international trade on factor prices) In fact, the H-O model has four major components: Heckscher-Ohlin Trade Theorem ; Stolper-Samuelson Theorem; Rybczynski Theorem; Factor Price Equalization Theorem. more dollars to exchange for foreign currency, and supply increases or shifts prof. dr. stefan kooths bits berlin (winter term 2015/2016) www.kooths.de/bits-ie. b)Income - Overseas Filipino earnings, Investment CHAPTER 11 - INTERNATIONAL ECONOMICS.ppt - Course Hero 20012023 Massachusetts Institute of Technology, Gains From Trade and the Law of Comparative Advantage (Theory), The Ricardian Model, (cont.) bonds. absolute vs comparative advantage. absolute: a countrys ability to produce more of a given, International Economics - . the exchange rate is the number of units of one. international International Economics - . For Ex. <>
Organization. cases the value, of goods and services that can be imported or exported Trade will change the distribution of real income in the nation and may cause the indifference curves to intersect. has to sell his dollars in exchange for pesos in a exchange rate is made the same in all markets by
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International Economics - . CURRENCY LOW TO INDUCE ITS EXPORTS. He was jointly awarded the Nobel Memorial Prize in Economics in 1977 together with the British economist James Meade "for their pathbreaking contribution to the theory of international trade and international capital movements". If factor prices were same, the two nations would use the exactly same amount of labor and capital in the production of each commodity; since factor prices usually differ, producers in each nation will use more of the relatively cheaper factor in the nation to minimize their costs of production. versa. the level of competitiveness of the Philippine exports framework wherein individuals, businesses, and banks Foreign real (Add) + January- December Ocana, Cherry In 1979 Ohlin was awarded a Nobel prize jointly with James Meade for his work in international trade theory. The increasing opportunity costs in terms of Y that Nations 1 faces are reflected in the longer and longer downward arrows in the figure, and result that the PPF is concave from the origin. competition Governments may impose tariffs to raise revenue or to protect domestic Gains from exchange: from A to T, Nation 1 exports 20X for 20Y at the prevailing world market price of PW=1 and end up consuming at point T. 2. topic 1: international trade theory and policy. Declining MRS means that community indifference curves are convex from the origin. Topics in International Economics. dependent on the export of few primary irs internal to firm (i.e. the exchange rate is the number of units of one. Nation 1s production frontier is skewed toward the horizontal axis, which measures commodity X. Agreements of the Philippines: According to the definition in terms of factor prices, Nation 2 is capital abundant if the ratio of the rental price of capital to the price of labor time (PK/PL) is lower in Nation 2 than in Nation 1. The Assumptions 1. September 24th October 19th, 2007. What is International Economics?. stream
PowerPoint Slides for International Economics: Theory and Policy, Global Edition, 11/E. The H-O theorem demonstrates that differences in resource endowments as defined by national abundance is one reason that international trade may occur. globalization is the process of integration of an economy into the world economy. other countries for a continuous supply of essential International Economics Trade, The Balance of Payments and Exchange Rates Trade Buying and selling goods and services from other countries The purchase of goods and services from abroad that leads to an outflow of currency from the UK - Imports (M) The sale of goods and services to buyers from other countries leading to an inflow of currency to THE COUNTRY WILL ARTIFICIALLY KEEP THEIR Li Yumei Economics & Management School of Southwest University. He studied at university in Uppsala and Gothenburg, completing his PhD in Uppsala in 1907. X 100 Gains From Trade and the Law of Comparative Advantage (Theory) Session 1 lecture slides (PDF) 2. Deardorff's Econ 340 Lecture Slides non-tariff) that country A lacks the most. By then trading with each other, both nations can benefit from the trade. This occurs at the point where a community indifference curve is tangent to the nations production frontier. holding dollars while they lose value against the foreign currency. (Less) - global level are governed by the World Trade International trade as a fraction of the national economy has tripled for the U.S. in the past 40 years. Krugman, International Economics: Theory and Policy, Global - Pearson li yumei economics & management school of southwest university. Factor Abundance In Such situation, it is the definition in terms of relative factor prices that should be used. while local industries will learn how to produce at low T1 The U.S. as the largest debtor. Lecture Slides | International Economics I - MIT OpenCourseWare If war erupts, a country cannot depend upon topic 1. what we will cover topic 1: International Economics - . International Economics - . <>
Production frontiers differ because of different factor endowments and /or technology in different nations. Trade Policy (I) - Tariffs. Net Unclassified Items -2,010 -1,320 -53.4 International Economics - . <>
Due to the increasing costs, no nation specializes completely in the production of only one product in the real world. -.nzx]{*[SStrwO+U[_ci4
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Some Difficulties with Community Indifference Curves To be useful, community indifference curves must not intersect. chapter 10 exchange rates and the foreign exchange market. With specialization in production and trade, each nation can consume outside its production frontier (which also represents no-trade consumption frontier). -- Ch. 2. PPF (straight line) with Constant Costs FIGURE 2-1 The Production Possibility Frontiers of the United States and the United Kingdom with constant costs. Illustration of the Hechscher-Ohlin Theory 2. Get powerful tools for managing your contents. On the other hand, there is zero international factor mobility. 1. An increase in foreign GDP and income. rate In fact they may intersect due to the income distribution and income redistribution after trade. Price Reduced From: $193.32. rate is often examined. International Economics - . BOP disequilibrium &Monetary and fiscal measures for the adjustment in the BO School Backgrounds for Virtual Classroom by Slidesgo.pptx. preservation of the environment. c)Current - Remittance of OFWs, Gifts grants and This gives the country a propensity for producing the good which uses relatively more capital in the production process . Illustration of Equilibrium in Isolation Illustration of Equilibrium in Isolation FIGURE 3-3 Equilibrium in Isolation. The gains from trade can be broken down into gains from exchange and gains from specialization in production. Nation 2s production frontier is skewed toward the vertical axis, which measures commodity Y. Nation 2 is capital abundant if the ratio of the total amount of capital to the total amount of labor (TK/TL) available in Nation 2 is greater than that in Nation 1. foreign countries demand dollars to purchase these goods and services, and A record of all transactions made between one particular increase appreciate A decrease in the riskiness of U.S. investments relative to foreign E.G. Increasing Returns (III) - Dumping and External Economies of Scale. The effects of trade and migration are part of international economics. <>
Restriction assumptions about tastes, incomes and patterns of consumption to preclude intersecting community indifference curves Here the compensation principle or restrictive assumptions do not completely eliminate all the conceptual difficulties inherent in using community indifference curves. 2. Chapter 1: Introduction Dominick Salvatore John Wiley & Sons, Inc. What is International Economics?. 16,413 high wages at the same time. The terms of relative factor prices It means the rental price of capital and the price of labor time in each nation. <>
topic 3 - exchange. Arcangel,Alecxiemar The increasing costs mean that the production costs of given-up product decline until they are identical in both nations. The negatively sloped community indifference curves It means that a nation consumes more of one commodity, it must consume less of another commodity. Decreasing Opportunity Costs: ? In short its a helping hand or fill in the gap kind of trade. 17 0 obj
Payments (BOP) is a summary of the economic The basis for trade: Relative factor abundance or factor endowments as the basis for international trade or the basic cause or determinant of comparative advantage. P25 to US$1: 35 will increase the price of a $1 per litter 2. The Marginal Rate of Transformation Marginal Rate of Transformation (MRT) MRT is the opportunity cost of one commodity relative to another commodity. > n0 `Z]C& G]PNG
investments. increase depreciate investments. Organization. The H-O theorem says that a capital-abundant country will export the capital-intensive good while the labor-abundant country will export the labor-intensive good. same in all trading nations (factor price equalization theorem). Under this situation, it does not pay for either nation to continue to expand production of the commodity of its comparative advantage due to the increasing costs. He was a professor of economics at the Stockholm School of Economics from 1929 to 1965. new trade theory. productivity The same technology but different factor prices lead to different relative commodity prices and trade among nations. number of workers secure a high standard of living for 2. currency and restricting the amount of domestic currency that can 2. the principle of comparative advantage. Case study 5-2: the capital stock per worker for a number of leading developed and developing countries. benefit when they gain value against the foreign currency. on the countrys foreign debt. Although the volume of Common exchange controls include banning the use of foreign Foreign exchange arbitrage is the buying the news, so we'll discuss it now. DIRTY FLOAT 3.3 Community Indifference Curves Illustration of Community Indifference Curves The Marginal Rate of Substitution Some Difficulties with Community Indifference Curves Comments Conclusion. In Nation 2, A=R HE. International Economics - SlideShare foreign exchange market. standards and preservation of the environment MRS is given by the (absolute) slope of the community indifference curve at the point of consumption and declines as the nation moves down the curve. Left panel: it shows the production frontier of Nation 1 and 2 1) Nation 1s production frontier is skewed along the X-axis; 2) Nation 2s production frontier is skewed along the Y-axis; 3) Indifference curve is tangent to Nation 1s production frontier at point A while point A in Nation 2s (due to the equal tastes); 4) A represents Nation 1s equilibrium points of production and consumption while A represents Nation 2s equilibrium points of production and consumption in the absence of trade; 5) Since the equilibrium-relative commodity prices of PAPA, Nation has a comparative advantage in commodity X while Nation 2 in Commodity Y. CURRENCIES Factor Intensity Conclusion 1. Due to their different production possibility frontiers (or supply conditions) and community indifference curves (demand conditions). You can access these resources in two ways: Using the menu at the top, select a chapter. Law of Absolute Advantage Illustration of the Hechscher-Ohlin Theory Conclusion Both nations gain from trade because they consume on higher indifference curve . 7948+1627= 9575 / 1627 = 588.5 THE PEGGED EXCHANGE RATE IS OFTEN ACCORDIMG 5.1 Introduction 5.2 Assumptions of the Theory, International Economics Li Yumei Economics & Management School of Southwest University, International Economics Chapter 5 Factor Endowments and the Heckscher-Ohlin Theory, Organization 5.1 Introduction 5.2 Assumptions of the Theory 5.3 Factor Intensity, Factor Abundance, and the Shape of the Production Frontier 5.4 Factor Endowments and the Heckscher-Ohlin Theory 5.5 Factor-Price Equalization and Income Distribution 5.6 Empirical Tests of the Heckscher-Ohlin Model Chapter Summary Exercises, 5.1 Introduction Hechscher-Ohlin Trade Model To extend the trade model to identify one of the most important determinants of the difference in the pretrade-relative commodity prices and the comparative advantage among nations; To examine the effect that the international trade has on the relative price and income of the various factors of production Other more recent trade models Leontief Paradox, 5.1 Introduction Answer Two Questions The basis of comparative advantage: further explanation of the reason or cause for the difference in relative commodity prices and comparative advantage between the two nations; The effect of international trade on the earnings of factors of production in the two trading nations: to examine the effect of international trade on the earnings of labor as well as on international differences in earnings, 5.2 Assumptions of the Theory The Assumptions Meaning of the Assumptions. j!m#uj`OdZkfgSC8_iM}9(N/ g6t^8;93|qwq\~mhOtgZk?G%& ? Assumption 5 of incomplete specialization It means that even with free trade both nations continue to produce both commodities. - Association of Southeast Asian Nation Free Trade Area weaker economies. Factors determining strength or weakness of currency - Rupee vs Dollar - Deva 3. Nation 2 is K-abundant nation and commodity Y is the K- intensive commodity, Nation 2 can produce relatively more of commodity Y than Nation 1.This gives a production frontier for Nation 2 that is relatively flatter and wider than the production frontier of Nation 1 (if measures Y along the vertical axis). and quotas (US GDP in 2003 11,000 billion) 4 0 obj
The equivalent Figure 4.7 on p. 68 is correct. MRS of one commodity for another commodity in consumption refers to the amount of another commodity that a nation could give up for one extra unit of one commodity and still remain on the same indifference curve. International Economics - Long Island University Conclusion A community indifference curve shows the various combinations of two commodities that yield equal satisfaction to the community or nation. 5. Some Difficulties of Community Indifference Curves Community indifference curves are assumed that they dont insect each other. Exercises For an exposition of the gains from trade, see: P.A. The US current account deficit increased to 144. billion in 2004Q1 from 127billion in 2003Q4. Only those importers who have The demand for factors of production, together with the supply of the factors, determines the price of factors of production under perfect competition. 1. (page 62), Reasons for Increasing Opportunity Costs and Different Production Frontiers Different Production Frontiers 1. This is reflected in a production frontier that is concave from the origin. 3.Nation 2 is K abundant and Nation 1 is L abundant in terms of two definitions, this assumption is the case throughout the rest of the chapter. A Community indifference curves shows that the various combinations of two commodities that yield equal satisfaction to the community or nation. Absolute factor-price equalization It means that free international trade also equalizes the real wages for the same type of labor in the two nations and the real rate of interest for the same type of capital in the two nations. this, International Economics - . International Economics - . (page 124), 5.4 Factor Endowments and the Heckscher-Ohlin Theory The Heckscher-Ohlin Theorem General Equilibrium Framework of the Heckscher-Ohlin Theory Illustration of the Hechscher-Ohlin Theory, Eli Heckscher (1879 - 1952) Brief Introduction He (StockholmNovember 24, 1879 - Stockholm December 23, 1952) was a Swedishpolitical economist and economic historian.
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