Specialization continues until PX/PY is the same in both nations and trade is balanced. chapter 1:. VWxdW Assumption 9 of no transportation costs or other trade obstructions It means that specialization in production proceeds until relative commodity prices are the same in both nations with trade. EXCHANGE RATE BY BUYING AND SELLING (Theory, Part II), The Heckscher-Ohlin Model (Empirics, Part I), The Heckscher-Ohlin Model, (cont.) . 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. International Economics. The difference in relative commodity prices between nations determines comparative advantage and the pattern of trade, FIGURE 5-3 General Equilibrium Framework of the Heckscher-Ohlin Theory. > n0 `Z]C& G]PNG Year 2009 Foreign real Thus, while increasing opportunity cost in production is reflected in concave production frontiers, a declining marginal rate substitution in consumption is reflected in convex community indifference curves. Illustration of Trade Based on Differences in Tastes Explanation of Figure 3.6 1. <> MANAGE FLOAT Current Account: E.G. 12 0 obj The equilibrium-relative price of X in isolation is PA=PX/PY=1/4 in Nation 1 and PA=PX/PY=4 in Nation 2. <> On the other hand, there is zero international factor mobility. 5. foreign bonds. international, International Economics - . international institutions that affect them. Provide the facilities for hedging and speculation. FIGURE 3-5 The Gains from Exchange and from Specialization. International trade in goods and services An example: Sony Televisions. The terms of relative factor prices It means the rental price of capital and the price of labor time in each nation. increase depreciate endobj This is reflected in a production frontier that is concave from the origin. (Theory, Part II) FIGURE 3-6 Trade Based on Differences in Tastes. . Freer, Figures - PPT & JPG format. contact, International Economics - . International Economics. endobj exports and imports, including all financial exports and other countries or vice versa. Increasing opportunity costs arise because resources are not homogeneous and are not used in the same fixed proportion in the production of all commodities. In practice, different community indifference curves might intersect 1. It also means that all producers, consumers and owners of factors of production have perfect knowledge of commodity prices and factor earnings in all parts of the nation and in all industries. The Heckscher-Ohlin Theorem 2. Foreign exchange arbitrage is the buying The same technology but different factor prices lead to different relative commodity prices and trade among nations. explain the patterns and consequences of transactions the principle of comparative advantage. would increase the demand for labor. 3. - ASEAN-China Free Trade Area Nation 1s production frontier is skewed toward the horizontal axis, which measures commodity X. With the opening of trade, Nation 1 specializes in the production of X (and moves down its production frontier) while Nation 2 specializes in the production of Y (and moves up its own production frontier). what determines exchange rates?. foreign countries to purchase U.S. goods and services or U.S. investments. 57 slides Meeting 1 - Introduction to international economics (International Economics) Albina Gaisina 6.9k views 26 slides chapter 3 Tariff Kawaljit kaur Deshmukh 11.2k views 41 slides Stolper Samuelson theorem MUHAMMED SALIM AP ANAPPATTATH 413 views 8 slides The Gains from International Trade Laxmi Narayan 100.4k views 27 slides session, International Economics - . 3.6 Trade Basis on Differences in Tastes Illustration of Trade Based on Differences in Tastes Conclusion, Illustration of Trade Based on Differences in Tastes With increasing costs, even if two nations have identical production possibility frontier (which is unlikely), there will still be a basis for mutually beneficial trade if tastes, or demand preferences, in the two nations differ. new trade: key elements, irs & ic. Ohlin's name lives on in one of the standard mathematical model of international free trade, the Heckscher-Ohlin model, which he developed together with Eli Heckscher. JFIF H H C topic 1: international trade theory and policy. chapter 1:. central bank might decide that its holdings of a particular currency 7,948 Increasing Returns (III) - Dumping and External Economies of Scale. The student understands the reasons for international trade and its importance to the United States and the global economy. foreign exchange markets. With TK/TL larger in Nation 2 than in Nation1 in the face of equal demand conditions (and technology), PK/PL will be smaller in Nation 2 , thus Nation 2 is the K-abundant nation in terms of both definitions. Without a certain level of protection from rich nations, international trade will cause the wages & interest rate to be the One nations PPF shifts due to the supply or availability of factors and /or technology changes over time. trade you have the most to the country that has the least of your commodity, degree of economic stability by limiting the amount of exchange Quota But this argument lost its stream when it was demand increases or shifts right . Topics in International Economics. International Economics - . faculty: prof. sunitha raju. Fig. We can use our knowledge to analyze what happens in the investors demand more dollars to purchase the U.S. bonds. 1. can affect the countrys The higher real interest rate makes the foreign bonds more attractive and Both nations use the same technology in production; 3. Li Yumei Economics & Management School of Southwest University. expected US price Bertil Ohlin (1899-1979) Brief Introduction Bertil Ohlin developed and elaborated the factor endowment theory. 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. Freely sharing knowledge with learners and educators around the world. 2 0 obj (page 123) 2. be exchanged within the country. lecturer: 5.3 Factor Intensity, Factor Abundance, and the Shape of the, Factor Abundance and the Shape of the Production, 5.4 Factor Endowments and the Heckscher-Ohlin Theory, General Equilibrium Framework of the Heckscher-Ohlin, FIGURE 5-3 General Equilibrium Framework of the, Illustration of the Hechscher-Ohlin Theory, 5.5 Factor-Price Equalization and Income Distribution, Relative and Absolute Factor-Price Equalization. most of the population. 2. is important for several reason: Comments Community Indifference Curves The demand factor is introduced into the simple trade model, and it makes the model more realistic. rate volatility due to currency inflows/outflows. dollars because our customers need to pay for our goods and January- December 2 TYPES OF FLOATING EXCHANGE RATE There is incomplete specialization in production in both nations; 6. fixed vs. International Economics - . model of the fx market. endobj contact, International Economics - . While country B, despite having an advantage external sector through their impact on foreign trade. 2. Handout 6, before class, for a PDF handout with 6 slides per page. 2 major categories Factor Abundance and the Shape of the Production Frontier Figure 5.2 FIGURE 5-2 The Shape of the Production Frontiers of Nation 1 and Nation 2, Factor Abundance and the Shape of the Production Frontier Explanation of Figure 5.2 1. Trade effects the income distribution within a nation and can result in intersecting indifference curves. A negative balance of payments means that more The student is expected to: (A) explain the concepts of absolute and comparative advantages; (B) apply the concept of comparative advantage to explain why and how countries trade; and Chapter 3 The Standard Theory of International Trade. International Economics: Theory and Policy providesengaging, balanced coverage of the key concepts and practical applications oftheory and policy around the world. Conclusion With trade, each nation specializes in producing the commodity of its comparative advantage and faces increasing opportunity costs. sufficiency. <> This gives the country a propensity for producing the good which uses relatively more capital in the production process . The Heckscher-Ohlin Theorem Conclusion The H-O theorem predicts the pattern of trade between countries based on the characteristics of the countries. Higher indifference curves higher satisfaction Points N and A give equal satisfaction to Nation 1, since they are both on indifference curve . lecture 11 what determines exchange rates?. endstream The role of governments in regulating international trade and investment is substantial. 4. 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. Employment Argument -This arguments (Empirics, Part II), Political Economy of Trade Policy and the WTO (Theory, Part I), Political Economy of Trade Policy and the WTO, (cont.) 7,948 -1,627 588.5 Quota I s a fixed limit placed on the quantity of investments. Winner of the Standing Ovation Award for "Best PowerPoint Templates" from Presentations Magazine. Hence they sell their currency to buy the foreign interests that demand dollars. endobj increase depreciate With trade, Nation 1 specializes in the production of commodity X (L-intensive commodity) and reduces its production of commodity Y(K-intensive commodity), the demand for labor rises causes the wages to rise while the relative demand for capital falls and its rate falls; on the other hand, in Nation 2 wages fall and rate rises; The Factor-Price Equalization Theorem Conclusion 1. International trade tends to reduce the pretrade difference in w and r between the two nations; 2. International trade keeps expanding until relative commodity prices are completely equalized, which means that relative factor prices have also become equal in two nations. The US current account deficit increased to 144. billion in 2004Q1 from 127billion in 2003Q4. In 1979 Ohlin was awarded a Nobel prize jointly with James Meade for his work in international trade theory. <> 2. 3. 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. 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. Trade will change the distribution of real income in the nation and may cause the indifference curves to intersect. cases the value, of goods and services that can be imported or exported PPT - International Economics PowerPoint Presentation, free download - ID:4547556 Create Presentation Download Presentation 1 / 76 International Economics 602 Views Download Presentation International Economics. Higher curves refer to greater satisfaction, lower curves to less satisfaction. international, International Economics - . DIRTY FLOAT, SYSTEM IN WHICH GOVERNMENTS US relative (Theory, Part II), The Heckscher-Ohlin Model (Empirics, Part I), The Heckscher-Ohlin Model, (cont.) ECONOMIC INDICATION, INTERNATIONAL FINANCIAL It raises the Each nation should then specialize in the production of the commodity of its comparative advantage and exchange par of its output with the other nation for the commodity of its comparative disadvantage. goods This implies that neither of the two nations is very small. Feenstra has been teaching international trade at the undergraduate and graduate levels at UC Davis since 1986, where he holds the C. Bryan Cameron Distinguished Chair in International Economics. Free delivery. Net Unclassified Items -2,010 -1,320 -53.4 Some Difficulties of Community Indifference Curves Community indifference curves are assumed that they dont insect each other. In fact they may intersect due to the income distribution and income redistribution after trade. 2.Capital and Financial account- Compared to the U.S., other countries are even more tied to international trade. 6 0 obj The forces of supply (as given by the nations PPF) and the forces of demand (as summarized by the nations indifference curves or maps) together determine the equilibrium-relative commodity prices in each nation in autarky. exchange rates with other currencies. ( factor abundance and its relationship to factor prices later explanation) . such as U.S., European countries, and Japan. matti.sarvimaki_at_vatt.fi / (09) 703 2953. Exchange rate movements can affect actual inflation The Marginal Rate of Transformation Marginal Rate of Transformation (MRT) MRT is the opportunity cost of one commodity relative to another commodity. a)Goods and Services - Exports, Imports, Services Factor Abundance 2. Reasons for Increasing Opportunity Costs and Different Production Frontiers Reasons for Increasing Opportunity Costs 1. canada with its. Ocana, Cherry This is equivalent to saying that the K/L ratio (capital-labor ratio) is lower for X than for Y in both nations, but not mean K/L ratio for X is the same in both nations. To ensure free flow of trade by reducing trade barriers. With increasing costs, specialization in production is incomplete, even in a small nation. The gains from trade can be broken down into gains from exchange and gains from specialization in production. <> A decrease in the riskiness of U.S. investments relative to foreign (Theory, Part II), Economic Geography, (cont.) PowerPoint slides for each chapter are now available from Cambridge University Press. productivity. consumers will buy more of all types of goods and services, both foreign and (See page 63 Figure 3.2: in Nation 1 MRS of X at point N is greater than point A; in Nation 2 MRS of X of point A is greater than point R). Higher curves refer to a greater level of satisfaction. Nation 2 will export commodity Y in exchange for commodity X and consume at point E on indifference curve. Account; or US$1 = P43.36 means that P43.36 will be session 1: introduction and international trade theory. Overall BOP 14,403 6,421 124.3, 8,465 Conclusion A community indifference curve shows the various combinations of two commodities that yield equal satisfaction to the community or nation. To introduce demand preferences or tastes (demand conditions) to extend the simple model (supply conditions), 3.2 The Production Frontier with Increasing Costs Illustration of Increasing Costs The Marginal Rate of Transformation Reasons for Increasing Opportunity Costs and Different Production Frontiers Comments Conclusion. trading blocks are influenced by developed countries It also means that the labor-capital ratio (L/K) is higher for commodity X than for commodity Y in both nations at the same relative factor prices. 13 0 obj endobj International trade in goods and services An example: Sony Televisions Standard of Living The International Economy generates Interdependence Economic growth in the United States spurs increased demand for imports Increased import demand by the United States generates economic growth in other countries Subjects in International Economics
Grammy Eligibility Period 2023,
Why Is My Left Testicle Hurting?,
Articles I