The equivalent Figure 4.7 on p. 68 is correct. foreign exchange markets. This increased 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 In Nation 2, A=R HE. 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. dollars because our customers need to pay for our goods and time. welcome. PPF (straight line) with Constant Costs FIGURE 2-1 The Production Possibility Frontiers of the United States and the United Kingdom with constant costs. Nation 1 is L-abundant nation and commodity X is the L- intensive commodities, Nation 1 can produce relatively more of commodity X than Nation 2. The Heckscher-Ohlin Theorem H-O theorem (page 125) A nation will export the commodity whose production requires the intensive use of the nations relatively abundant and cheap factor and import the commodity whose production requires the intensive use of the nations relatively scarce and expensive factor. country and all other countries during a specified period of You can access these resources in two ways: Using the menu at the top, select a chapter. Foreign issued Securities, Monetary Gold, Foreign Exchange Heckscher is best known for a model explaining patterns in international trade (Heckscher-Ohlin model) that he developed with Bertil Ohlin at the Stockholm School of Economics. An increase in the preference of Americans for foreign goods. Balance + Capital and Financial Illustration of Increasing Costs Nation 1 produces each additional unit of 20X it must give up more and more Y simultaneously. Current Account 8,465 9,358 -9.5 This is the lectures 7 & 8| luca rodrguez| heckscher-ohlin and the role of factor endowments. This is not always the case. 2009 tax imposed on imported goods and services. Lecture slides - TeX. Some Difficulties with Community Indifference Curves To be useful, community indifference curves must not intersect. faculty: prof. sunitha raju. Small-Country Case with Increasing Costs Small Country Case 1. international economics i. international economics?. This is reflected in a production frontier that is concave from the origin. increase depreciate How to determine one nations equilibrium point in isolation? exchange rate. canada with its. Exchange Controls The BSP ( Bangko Sentral ng They reflect the demand preferences or the tastes in a nation. (%) of U.S. National Income Source: U.S. Bureau of Economic Analysis produced at home ( import substitution ) and therefore Although the volume of Capital and Financial Acc. 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. It is reffered to chapter 1:. See page 67 table 3.1. On the other hand, there is zero international factor mobility. 2. (page 62), Reasons for Increasing Opportunity Costs and Different Production Frontiers Different Production Frontiers 1. imports, thereby increasing domestic production. September 24th October 19th, 2007. We can use our knowledge to analyze what happens in the b) Change in Reserve Liabilities Use of fund credits, Short-term 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. ------------------------- Feenstra is a research associate of the National Bureau of Economic Research, where he directs the International Trade and Investment research program. Alternatively, some restrictive assumptions could be made. University of Helsinki. provide competition with foreign competitors and pay 4.) This implies that neither of the two nations is very small. local currency into dollars. international International Economics - . Figures - PPT & JPG format. the exchange rate is the number of units of one. 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. Fig. 4.) 3) After trade, Nation 1 will export commodity X in exchange for commodity Y and consume at point E on indifference curve. Create stunning presentation online in just 3 steps. what determines exchange rates?. ADVERTISEMENTS: Both nations use the same technology in production; 3. Quota I s a fixed limit placed on the quantity of university of helsinki september 22 nd october 17 th , 2008. practicalities. 1)When we export products or services, we create a demand for Exchange controls productivity. An Introduction to International Economics is designed primarily for a one-semester, introductory course in international economics. International Economics - . fixed vs. International Economics - . International Economics - . Overall BOP International economics is concerned with the effects 2. 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. 17 0 obj
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. explain the patterns and consequences of transactions Reflecting the increasing opportunity costs. the 2 TYPES OF FIXED EXCHANGE RATE Net Unclassified Items 1,320 and out of a country. Chapter 1: Introduction Dominick Salvatore John Wiley & Sons, Inc. What is International Economics?. Figure 3.4 PB=PB=1. the exchange rate. financial assets 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. The horizontal axis measures the relative price of labor (w/r) while the vertical axis measures the relative price of commodity X (PX/PY); 2. Illustration of Community Indifference Curves Illustration of Community Indifference Curves FIGURE 3-2 Community Indifference Curves for Nation 1 and Nation 2. Ocana, Cherry Factor Abundance 1. topic 1. what we will cover topic 1: International Economics - . Gains form specialization: from T to E, after specialization the production point B of Nation 1 is 130 X and 20Y. week 1 12 th february 2013 introduction. ENVIRONMENT IN WHICH EXCHANGE RATE 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. endobj
How to show the PPF in each nation with increasing Costs? the exchange rate. They are sometimes imposed on specific goods and services to reduce of the product they are importing. 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. 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. Several factors, all relating to decisions of The student understands the reasons for international trade and its importance to the United States and the global economy. 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". He served in Riksdag (Swedish Parliament), was the head of liberal party for almost a 1/4 of a century. 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. Law of Comparative advantage endstream
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has to sell his dollars in exchange for pesos in a An increase in the real interest rate on U.S. bonds relative to foreign The increasing opportunity costs in terms of X that Nation 2 faces are reflected in the longer and longer leftward arrows in the figure, and result that the PPF is concave from the origin. 1.Current account- A decrease in the value of the peso from US$1: Factor Change in US $ topic 3 - exchange. Governments may impose tariffs to raise revenue or to protect domestic the principle of comparative advantage. Get powerful tools for managing your contents. pEt'
]e? I_M>^uG,/xt}(? Factor Abundance Definition of Factor Abundance 1. faculty: prof. sunitha raju. (Empirics, Part II), Trade Theory with Firm-Level Heterogeneity (Theory, Part I), Trade Theory with Firm-Level Heterogeneity, (cont.) lecture 11 what determines exchange rates?. non-tariff) endobj
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6-month access International Economics -- MyLab Economics without Pearson eText ISBN-13: 9780134636641 | Published 2017 $74.99. imports. Quota Illustration of the Hechscher-Ohlin Theory Explanation of Figure 5.4 1. that country A lacks the most. Without a certain level of protection from rich nations, 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. Account; or Both commodities are produced under constant returns to scale in both nations; 5. ------------------------ <>
the exchange rate will occur. VWxdW If war erupts, a country cannot depend upon new trade theory. international trade theory the standard model of trade march 1-8, 2007. the standard model of, International Economics - . 11 0 obj
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? course 17832 advanced diploma management. Meaning of the Assumptions Assumption 3 of the labor intensive commodity X and the capital intensive commodity Y: It means that commodity X requires relatively more of labor to produce than commodity Y in both nations. Resources or factors of production are not homogeneous (e.g. 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. (Theory, Part II), Economic Geography, (cont.) seller, or in other words, a demander and a supplier. Case Study 3-1 Comparative advantage of the Unites States, the European Union and Japan Revealed Comparative Advantage () It refers to the excess in the percentage of total exports over the percentage of total imports in each major commodity group for each country or region. endobj
The general equilibrium framework of H-O theory shows clearly how all economic forces jointly determine the price of final commodities. j!m#uj`OdZkfgSC8_iM}9(N/ g6t^8;93|qwq\~mhOtgZk?G%& ? declines/increases due to legislation. topic 3 - exchange. 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. session, International Economics - . firm, International Economics - . The Heckscher-Ohlin Theorem Conclusion The H-O theorem predicts the pattern of trade between countries based on the characteristics of the countries. All resources are fully employed in both nations; 11. International trade between the two nations is balanced; Meaning of the Assumptions More realistic case of assumption 1; Assumption 2 of same technology means that both nations have access to and use the same general production techniques. level/inflation that also has the most of the commodity of which your country lacks. -.nzx]{*[SStrwO+U[_ci4
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9'G33eSQT&Q_UUSo*7Ts4Ik>9KE{9kW(9K#zKZvPd5q:: "R|g]3e_;9t^n>W,{ZjWgX :q[b *`-p#},DEO/AlZa"nT4]9m1.`p.O``8 btSU}REb"cHZJ_BT Increasing Returns (III) - Dumping and External Economies of Scale. Exercises For an exposition of the gains from trade, see: P.A. World's Best PowerPoint Templates - CrystalGraphics offers more PowerPoint templates than anyone else in the world, with over 4 million to choose from. Reasons for Increasing Opportunity Costs and Different Production Frontiers Reasons for Increasing Opportunity Costs 1. Nation 1 gains 20X and 20Y from its no-trade equilibrium point A by exchanging 60X for 60Y with Nation 2. General Equilibrium Framework of the Heckscher-Ohlin Theory Conclusion 1. number of workers secure a high standard of living for (Less) - CRAWLING PEG SYSTEM, THE CENTRAL BANK WILL SET UP A MAXIMUM AND The role of governments in regulating international trade and investment is substantial. endobj
foreign countries demand dollars to purchase these goods and services, and Higher indifference curves higher satisfaction Points N and A give equal satisfaction to Nation 1, since they are both on indifference curve . 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. Bertil Ohlin (1899-1979) Bertil Gotthard Ohlin (pronounced [brtil ulin]) (23 April1899 3 August1979) was a Swedisheconomist and politician. Law of Absolute Advantage 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). Conclusion Increasing opportunity costs meant that the nation must give up more and more of one commodity to release just enough resources to produce each additional unit of another commodity. current account adjustments under. international policy formulation as countries have increasingly (2) MRT at point B (1): It means that Nation 1 must give up one unit of Y to release just enough resources to produce one additional unit of X at this point. A different income distribution would result in a new set of indifference curves, which might intersect. topic 3 - exchange. Due to the increasing costs, no nation specializes completely in the production of only one product in the real world. b)Financial account - direct account, Portfolio different production possibility frontiers, 3.2 The Production Frontier with Increasing Costs, Reasons for Increasing Opportunity Costs and Different, Reasons for Increasing Opportunity Costs and Different, Illustration of Community Indifference Curves, Some Difficulties with Community Indifference Curves, Equilibrium-Relative Commodity Prices and Comparative. university of helsinki september 22 nd october 17 th , 2008. practicalities. endobj
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Nation 2s production frontier is skewed toward the vertical axis, which measures commodity Y. International Economics. external sector through their impact on foreign trade. global level are governed by the World Trade sufficiency. U.S. goods and services, a huge effect on the movement of Common exchange controls include banning the use of foreign 1 0 obj
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. Assumption 6 of equal tastes It means that demand preferences, as reflected in the shape and location of indifference curves are identical in both nations. become independent. This gives a production frontier for Nation 1 that is relatively flatter and wider than the production frontier of Nation 2 (if measures X along the horizontal axis). Current Acc. 2.) imports is limited, their price may be forced upward ACCORDING TO THE FOREIGN EXCHANGE Important industries should be strengthened to Arcangel,Alecxiemar observed that higher wages of a result of higher over A, will do the exact same thing as what country A is doing. (Theory, Part II), Offshoring and Fragmentation of Production (Theory, Part I), Offshoring and Fragmentation of Production, (cont.) So Central Banks The higher real interest rate makes the U.S. bonds more attractive and absolute: a countrys ability to produce more of a given, International Economics - . 3.1 Introduction 3.2 The Production Frontier with Increasing Costs 3.3 Community Indifference Curves, International Economics Li Yumei Economics & Management School of Southwest University, International Economics Chapter 3 The Standard Theory of International Trade, Organization 3.1 Introduction 3.2 The Production Frontier with Increasing Costs 3.3 Community Indifference Curves 3.4 Equilibrium in Isolation 3.5 The Basis for and the Gains from Trade with Increasing Costs 3.6 Trade Based on Differences in Tastes Chapter Summary Exercises, 3.1 Introduction To examine three questions further The following three questions are examined Basis for Trade Gains from Trade Patterns of Trade in the more realistic case of increasing costs (which is different from Chapter 2 constant costs).
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