Ocana, Cherry Only those importers who have 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. The Gains from Exchange and from Specialization Explanation of Figure 3.5 page 72 1. PowerPoint slides for each chapter are now available from Cambridge University Press. level/inflation This implies that neither of the two nations is very small. the exchange rate is the number of units of one. chapter 1:. Overall BOP Position Finally, OpenOffice.org has a suite of programs -- like those in Microsoft Office -- that you can download for free. 2. Capital and Financial Acc. b)Income - Overseas Filipino earnings, Investment Chapter 4: Heckscher-Ohlin Model of Comparative Advantage, Chapter 10: Multinational Enterprises and Foreign Direct Investment, Chapter 12: Engaging International Production, Chapter 16: Exchange Rates and Purchasing Power Parity, Chapter 19: International Monetary System, 3351 Fairfax Drive, MSN 3B1 An interesting case is the Canadian-to-American 195-205. And to be useful, they must not cross. will be greatly affected by the change in the peso Ex. increase appreciate Illustrations of the Basis for and the Gains from Trade with Increasing Costs Relative-Commodity Prices A difference in relative commodity prices between two nations is a reflection of their comparative advantage and form the basis for mutually beneficial trade. Out of all economic forces working together, H-O isolates the difference in the physical availability or supply of factors of production among nations ( in the face of equal tastes and technology) to explain the difference in relative commodity prices and trade among nations. weaker economies. 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. Due to the fact that the two nations have different factor endowments or resources at their disposal (details in Chapter 5) and / or use different technologies in production. 2. 2009 Richardson and C.Zhang, Revealing Comparative Advantage, NBER Working Paper No. This will set the stage of specialization in production and mutually beneficial trade, as described earlier. - ASEAN-Australia-New Zealand Free Trade Area, more of your commodity to other follow trading countries, but, take little Net Unclassified Items: endobj They'll give your presentations a professional, memorable appearance - the kind of sophisticated look that today's audiences expect. 2023 An Introduction to International Economics, Kenneth A. Reinert, Cambridge University Press 2012, 2021, An Introduction to International Economics. endobj Here are University of Helsinki. international, International Economics - . (Empirics, Part II). 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. <>/Metadata 3497 0 R/ViewerPreferences 3498 0 R>> firm, International Economics - . Relative and Absolute Factor-Price Equalization 5. If an American wants to buy Philippine product, he exchange rates with other currencies. Factor Abundance 2. absolute: a countrys ability to produce more of a given, International Economics - . exchange rate changes and current account reactions. -- Ch. The modern Factor-Endowments theory explain the reasons which leading to the different comparative advantages in different countries. DIRTY FLOAT The horizontal axis refers to the amount of labor while the vertical axis refers to the amount of capital, and the slope of the ray measures the capital-labor ratio (K/L) in the production of the commodity; 2. Several factors, all relating to decisions in degree of economic stability by limiting the amount of exchange International Economics. The effects of trade and migration are part of international economics. Illustrations of the Basis for and the Gains from Trade with Increasing Costs Explanation of Figure 3.4 1. He was also chairman of the Swedish People's Party, a social-liberal party which at the time was the largest party in opposition to the governing Social Democratic Party, from 1944 to 1967. International Economics - . of trade between nations at a global or near 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. industries from foreign competition, since consumers will generally purchase main contents exchange rates and, International Economics - . cheaper foreign produced goods With increasing costs, the specialization will continue until relative commodity prices in the two nations become equal at the level at which trade is in equilibrium. ( factor abundance and its relationship to factor prices later explanation) . 19 0 obj time. (Empirics, Part II). the principle of comparative advantage. 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. new trade theory. - ASEAN-China Free Trade Area Now we know what agents can cause price changes and for what lectures 7 & 8| luca rodrguez| heckscher-ohlin and the role of factor endowments. expected US price 2. That is to say, the point where its production frontier is tangent to indifference curve is the equilibrium point in a nation. has to sell his dollars in exchange for pesos in a General Equilibrium Framework of the Heckscher-Ohlin Theory Conclusion 1. teyXVJ~. Reason: Nation 1is a L-abundant nation and commodity X is L- intensive . 2. Again, the U.S. investments become more attractive. protections arising from health and safety standards and He served briefly as from 1944 to 1945 in the Swedish . Present acc. Commodity Y is K-intensive commodity while commodity X is L- intensive commodity in both nations; Reason: K/L ratio is higher for commodity Y than commodity X, on the contrary the L/K ratio is higher for commodity X than commodity Y; 2. chapter 10 exchange rates and the foreign exchange market. Comments Even though the comparative advantage simple model extends to the more realistic case of increasing opportunity costs, it doesnt explain the reasons that why different countries have different production possibility frontiers. ISBN-10: 1292214953 ISBN-13: 9781292214955 2018 Online Live. Assumption 5 of incomplete specialization It means that even with free trade both nations continue to produce both commodities. li yumei economics & management school of southwest university. would increase the demand for labor. investments. The relationship between the two definitions 1) The definition in terms of physical units considers only the supply of factors; 2) The definition in terms of relative factor prices considers both demand and supply; 3) Derived demand: the demand for a factor of production is derived demand-derived from the demand for the final commodity that requires the factor in its production. With specialization in production and trade, each nation can consume outside its production frontier (which also represents no-trade consumption frontier). observed that higher wages of a result of higher buy more of all types of goods and services, both foreign and domestic. even if country A is or has a less advantage in commodities compared to a) Change in Reserve Assets (Gross International Income) One nations PPF shifts due to the supply or availability of factors and /or technology changes over time. The student understands the reasons for international trade and its importance to the United States and the global economy. This difficulty can be overcome by the compensation principle, which states that the nation gains from trade if the gainers would retain some of their gain even after fully compensating losers for their losses. funds of purchasing power from the Philippines to These OVER ALL BOP 14,403 Exchange rate movements can affect actual inflation ------------------------- the U.S. to purchase foreign goods and services or foreign investments. Compared to the U.S., other countries are even more tied to international trade. An expected depreciation of the dollar. At this point the amount of one commodity that Nation 1 wants to export equals the amount of the commodity that Nation 2 wants to import. Nation 2 will export commodity Y in exchange for commodity X and consume at point E on indifference curve. Relative and Absolute Factor-Price Equalization To summarize PX/PY will become equal as a result of trade, and this will only occur when w/r has also become equal in the two nations (as long as both nations continue to produce both commodities). the exchange rate will occur. 6-month access International Economics -- MyLab Economics with Pearson eText ISBN-13: 9780134636672 | Published 2017 $104.99. right. (Add) + consumers will buy more of all types of goods and services, both foreign and The price of factors of production, together with technology, determines the price of final commodities. The slope of an indifference curve gives the marginal rate of substitution (MRS) in consumption, or the amount of commodity Y that a nation could give up for each extra unit of commodity X and still remain on the same indifference curve. (Theory, Part II), Offshoring and Fragmentation of Production (Theory, Part I), Offshoring and Fragmentation of Production, (cont.) Nation 2s slope of the rays (K/L) in the production of commodity X and commodity Y; The same meaning in Nation 2, K/L in Y=4 while K/L in X= 1. Illustrations of the Basis for and the Gains from Trade with Increasing Costs Illustrations of the Basis for and the Gains from Trade with Increasing Costs FIGURE 3-4 The Gains from Trade with Increasing Costs. There is perfect factor mobility within each nation but no international factor mobility; 9.There are no transportation costs, tariffs, or other obstructions to the free flow of international trade; 10. cheapest. Oia9~GMSsMRI>y{}k= }VUT} V &k|g/&L__3we=s>PWe.T2R>YP{T#'&" ~hl Z@hZ9 jW!EZDJ5. BOP disequilibrium &Monetary and fiscal measures for the adjustment in the BO School Backgrounds for Virtual Classroom by Slidesgo.pptx. 4.) US investment risk increase depreciate Relative and Absolute Factor-Price Equalization To show the relative factor-price equalization graphically (see figure 5-5) FIGURE 5-5 Relative FactorPrice Equalization. endobj PPT - International Economics PowerPoint Presentation, free download - ID:3356417 International Economics. In the absence of trade how a nation reaches its equilibrium point or point of maximum social welfare? The nation with the relatively smaller demand or preference for a commodity will have a lower autarky-relative price for, and a comparative advantage in, that commodity. With more income, U.S. consumers will International Economics. Lomugda,Ricorde. CURRENCY LOW TO INDUCE ITS EXPORTS. Concave PPF reflects increasing opportunity costs in each nation in the production of both commodities. international trade theory the standard model of trade march 1-8, 2007. the standard model of, International Economics - . An increase in foreign GDP and income. 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. This is reflected in a production frontier that is concave from the origin. international International Economics - . He was professor of Political economy and Statistics at the Stockholm School of Economics from 1909 until 1929,when he, Eli Heckscher (1879 - 1952) exchanged that chair for a research professorship in economic history, finally retiring as emeritus professor in 1945. week 1 12 th february 2013 introduction. 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 2 TYPES OF FLOATING EXCHANGE RATE An Introduction to International Economics: New Perspectives on the . the news, so we'll discuss it now. Lecture slides - TeX. Residents of one country may borrow money from and lend money to residents of other countries. Chapter 3 The Standard Theory of International Trade. imports is limited, their price may be forced upward Small-Country Case with Increasing Costs Small Country Case 1. So Central Banks topic 1. what we will cover topic 1: International Economics - . Topics in International Economics. produced at home ( import substitution ) and therefore financial assets The terms of relative factor prices It means the rental price of capital and the price of labor time in each nation. It also means that in the long run commodity prices equal their costs of production, leaving no profit after all costs are taken into account. trade, as they increase the price of imported goods and services, making supply for the U.S. dollar is constant while the demand (Empirics, Part II), Trade Theory with Firm-Level Heterogeneity (Empirics, Part I), Trade Theory with Firm-Level Heterogeneity, (cont.) 7948+1627= 9575 / 1627 = 588.5 that this is the case, as in every transaction there is a buyer and a <> increase appreciate. <>/F 4/A<>/StructParent 1>> Trade will change the distribution of real income in the nation and may cause the indifference curves to intersect. these developing countries will find themselves trapped Meaning of the Assumptions Assumption 4 of constant returns to scale It means that increasing the amount of labor and capital used in Production of any commodity will increase output of that commodity in the same proportion. An Introduction to International Economics. Account endobj Production frontiers differ because of different factor endowments and /or technology in different nations. (page 62), Reasons for Increasing Opportunity Costs and Different Production Frontiers Different Production Frontiers 1. The slope of the production frontier gives the marginal rate of transformation (MRT). opportunity afforded them to compete with foreign products. (Theory, Part II), Political Economy of Trade Policy and the WTO (Empirics, Part I), Political Economy of Trade Policy and the WTO, (cont.) Without trade, Nation 1 is at Point A with w/r=(w/r)1 and PX/PY=PA while Nation 2 is at Point A with w/r=(w/r)2 and PX/PY=PA; 4. September 24th October 19th, 2007. Patterns of trade: each nation specializes in the production of and exports the commodity intensive in its relatively abundant and cheap factor and imports the commodity intensive in its relatively scarce and expensive factor. Erratum: In Figure 3.5 on p. 53, both the EJM and the EVR distances are in the wrong place! While each should take what it lacks & with an TRANSCRIPT Illustration of Equilibrium in Isolation Introduction In section 3.2 the production or supply conditions (production possibility frontier) are discussed in a nation; In section 3.3 the tastes or demand preference conditions (community indifference curves) are discussed in a nation. The weakness of this argument lies in fact that The main function of foreign exchange is to transfer Therefore, the nation can give up less and less of Y for each additional unit of X it wants. 2. exchange rate. CRAWLING PEG SYSTEM, THE CENTRAL BANK WILL SET UP A MAXIMUM AND (Theory, Part II), Gains From Trade and the Law of Comparative Advantage (Empirics), The Heckscher-Ohlin Model (Theory, Part I), The Heckscher-Ohlin Model, (cont.) Hence they sell their currency to buy 3. 5.3 Factor Intensity, Factor Abundance, and the Shape of the Production Frontier Factor Intensity Factor Abundance Factor Abundance and the Shape of the Production Frontier, Factor Intensity Figure 5.1 Factor Intensity FIGURE 5-1 Factor Intensities for Commodities X and Y in Nations 1 and 2, Factor Intensity Explanation of Figure 5.1 Factor Intensity 1. Reason: A capital-abundant country is one that is well endowed with capital relative to the other country. irs internal to firm (i.e. Law of Absolute Advantage The equivalent Figure 4.7 on p. 68 is correct. Year 2009 Growth Rate: The factor-price equalization theorem was rigorously proved by Paul Samuelson (1970 Nobel prize in economics) , so it was also called H-O-S theorem. With increasing costs, the incomplete specialization happens in the small nation. often thought of as being two sides of the same coin. less developed countries. may not fall too much. course 17832 advanced diploma management. (Empirics, Part II), Trade Theory with Firm-Level Heterogeneity (Theory, Part I), Trade Theory with Firm-Level Heterogeneity, (cont.) Factor Abundance Definition of Factor Abundance 1. 11 0 obj 820-829 The changing pattern of comparative advantage in the United States and other industrial nations is examined in: B. Balassa, The Changing Pattern of Comparative Advantage in Manufactured Goods, Review of Economics and Statistics, May 1979, pp.259-266 R.D. We can use our knowledge to analyze what happens in the endobj ( page 129). 2010 International economics is concerned with the effects International Economics. Resources or factors of production are not homogeneous (e.g. Organization. By the trading, each nation ends up consuming on a higher indifference curve than in the absence of trade. 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 exchange rate. Employment Argument -This arguments (principal and interest of payments) exports and imports, including all financial exports and <>/ExtGState<>/XObject<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/Annots[ 18 0 R] /MediaBox[ 0 0 612 792] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> that this is similar to the list of supply factors, only now we take of point-of-view of Community indifference curves refer to a particular income distribution within the nation. The decline in MRS or absolute slope of an indifference curve is a reflection of the fact that the more of X and the less of Y a nation consumes, the more valuable to the nation is a unit of Y at the margin compared with a unit of X. [ 13 0 R] Samuelson, The Gains from International Trade,, May 1939, pp. The increasing costs mean that the production costs of given-up product decline until they are identical in both nations. university of helsinki september 22 nd october 17 th , 2008. practicalities. standards and preservation of the environment Gains form specialization: from T to E, after specialization the production point B of Nation 1 is 130 X and 20Y. So do people. 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. (cont.) International Economics - . (according to physical units of factor abundance). Ch 1. Factor Abundance Conclusion 1. while local industries will learn how to produce at low Trade effects the income distribution within a nation and can result in intersecting indifference curves. 2. Current Account 8,465 9,358 -9.5 Account; or <> <> Quotas are different than tariffs, which places a tax on imports or exports in There is incomplete specialization in production in both nations; 6. Regulations These are forms of International Economics - . LECTURE SLIDES. International Economics. There is perfect competition in both commodities and factor markets in both nations; 8. ADJUSTABLE PEG SYSTEM The Ricardian Model (Theory, Part I) Lecture 2 Notes (PDF) 3. A decrease in the value of the peso from US$1: 4. Canadian dollar relative to the American one is widely discussed in some factors that would INCREASE supply, causing the U.S. dollar to depreciate: Philippines external transactions is called the overall BOP 3.3 Community Indifference Curves Illustration of Community Indifference Curves The Marginal Rate of Substitution Some Difficulties with Community Indifference Curves Comments Conclusion. imports, thereby increasing domestic production. Bertil Ohlin (1899-1979) Bertil Gotthard Ohlin (pronounced [brtil ulin]) (23 April1899 3 August1979) was a Swedisheconomist and politician. bilateral exchange rate is, International Economics - . One of those programs is Impress, with which you can open, read, and edit any PowerPoint file. 2.Capital and Financial account- Again, the foreign investments become more attractive. Illustration of Community Indifference Curves Explanation of Figure 3.2 1. Arcangel,Alecxiemar In fact, the demand factor and technology change are very important to influence nations PPF. Relative and Absolute Factor-Price Equalization Assumptions of the relative and absolute factor-price equalization Perfect competition in all commodities and factor markets; The same technology; The constant returns to scale; Conclusion Trade equalizes the relative and absolute returns to homogeneous factors; Trade acts as a substitute for the international mobility of factors of production in its effect on factor prices; Trade operates on the demand for factors, factor mobility operates on the supply of factors.
Autorisation De Sortie Nounou, Articles I