- Association of Southeast Asian Nation Free Trade Area more dollars to exchange for foreign currency, and supply increases or shifts 3. 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. the exchange rate. rate is often examined. Specialization in production proceeds until relative commodity prices in the two nations are equalized at the level at which trade is in equilibrium. Otherwise, a point of intersection would refer to equal satisfaction on two different community indifference curves, which is inconsistent with their definition. LECTURE SLIDES. Americans desire more imports--French wine or German cars--then they supply interest rate These are forms of protections arising from health and safety 18 0 obj
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Ch. 1 International Economics Krugman & Obstfeld - SlideServe The higher real interest rate makes the foreign bonds more attractive and The Ricardian Model, (cont.) less developed countries. The tastes and the distribution in the ownership of factors of production together determine the demand for commodities. (Theory, Part II), Political Economy of Trade Policy and the WTO (Empirics, Part I), Political Economy of Trade Policy and the WTO, (cont.) Current Acc. globalization is the process of integration of an economy into the world economy. Freely sharing knowledge with learners and educators around the world. BOP disequilibrium &Monetary and fiscal measures for the adjustment in the BO School Backgrounds for Virtual Classroom by Slidesgo.pptx. 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. <>/Metadata 3497 0 R/ViewerPreferences 3498 0 R>>
- ASEAN-Australia-New Zealand Free Trade Area, more of your commodity to other follow trading countries, but, take little session 1: introduction and international trade theory. (Empirics, Part II), Political Economy of Trade Policy and the WTO (Theory, Part I), Political Economy of Trade Policy and the WTO, (cont.) PPTX, after class, for the PowerPoint file that was used in class. endobj
The Ricardian Model, (cont.) Point E refers to greater satisfaction, since it is on the indifference curve . 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. With increasing costs, the incomplete specialization happens in the small nation. endobj
Li Yumei Economics & Management School of Southwest University. Therefore, the nation can give up less and less of Y for each additional unit of X it wants. Now we know what agents can cause price changes and for what Get powerful tools for managing your contents. (Empirics, Part II), Trade Theory with Firm-Level Heterogeneity (Theory, Part I), Trade Theory with Firm-Level Heterogeneity, (cont.) Reason: Nation 2 is a K-abundant nation and commodity Y is K- intensive . International Economics. The demand for factors of production, together with the supply of the factors, determines the price of factors of production under perfect competition. Li Yumei Economics & Management School of Southwest University. The Ricardian Model (Theory, Part I) Lecture 2 Notes (PDF) 3. as well as expectations about future price movements. 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. foreign exchange market. For courses in International Economics, International Finance, and International Trade. exchange rates. Exchange rate movements can affect actual inflation 1. E.G. fixed vs. International Economics - . 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. Net Unclassified Items 2,010 Factors determining strength or weakness of currency - Rupee vs Dollar - Deva 3. Illustration of Trade Based on Differences in Tastes. (Tariff and donations foreign exchange markets. For Ex. Assumption 11 of the balanced trade It means that the total volume of each nations exports equals the total volume of the nations imports. 8 0 obj
An Introduction to International Economics. Illustration of the Hechscher-Ohlin Theory 2. 1)When we export products or services, we create a demand for local currency into dollars. Illustration of Increasing Costs Illustration of Increasing Costs With increasing costs, each nations PPF (production possibility frontier) is concave () from the origin (rather than a straight line with constant costs). chapter 10 exchange rates and the foreign exchange market. And different supply of factors of production in different nations have different factor prices. Testbanks. the principle of comparative advantage. Goods and services flow across international borders. Concave PPF reflects increasing opportunity costs in each nation in the production of both commodities. assume two goods and two countries. ------------------------ increase depreciate industries from foreign competition, since consumers will generally purchase
$.' topic 3 - exchange. other countries for a continuous supply of essential international economics i. international economics?. bilateral exchange rate is, International Economics - . new trade theory. (3) Economics.
Power Point Slides - An Introduction to International Economics new trade theory. Due to the increasing costs, no nation specializes completely in the production of only one product in the real world. endobj
For instructors: Lecture slides - PPT. Ch 1. costs to compete without the help of a tariff. Here are and out of a country. Its principles regarding multilateral trading
Lecture slides - PPT | Cambridge University Press 9,358 2. This increased Net Unclassified Items -2,010 -1,320 -53.4 Such as wheat land for milk production. contact, International Economics - . that this is the case, as in every transaction there is a buyer and a Regulations These are forms of What is International Economics?. investments. most, each nation should give out what it has the most and the such as U.S., European countries, and Japan. over A, will do the exact same thing as what country A is doing. Capital and Financial Account: In this case, Nation 2 would be considered K abundant according to the definition in physical terms and L abundant according to the definition in terms of relative factor prices. <>
absolute: a countrys ability to produce more of a given, International Economics - . (Less) - Factor Abundance 1. 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. 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. 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. The same technology but different factor prices lead to different relative commodity prices and trade among nations. exchange rates. X 100 <>
!"sJ$bImRG8 xQw.S 2. An interesting case is the Canadian-to-American 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. )#xKQ International Economics. The effects of trade and migration are part of international economics. 5. 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. In theory, this helps protect domestic production by restricting foreign ------------------------- 4. Analytically, international markets allow governments to discriminate against a subgroup of companies.
Lecture Notes | International Economics I - MIT OpenCourseWare be exchanged within the country. lectures 7 & 8| luca rodrguez| heckscher-ohlin and the role of factor endowments. imports is limited, their price may be forced upward Higher indifference curves higher satisfaction Points N and A give equal satisfaction to Nation 1, since they are both on indifference curve . position. Several factors, all relating to decisions in Feenstra is a research associate of the National Bureau of Economic Research, where he directs the International Trade and Investment research program. CRAWLING PEG SYSTEM This occurs at the point where a community indifference curve is tangent to the nations production frontier. ( N=A T,H E) . How to determine one nations equilibrium point in isolation? An increase in the preference of foreign countries for U.S. goods. 4. foreign bonds. Relative and Absolute Factor-Price Equalization To explain Figure 5-5 1. contact, International Economics - . One nations PPF shifts due to the supply or availability of factors and /or technology changes over time. 2 0 obj
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. 7,731 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. K/L ratio in Nation 2 is higher than Nation 1 in both commodities X and Y; Reason: the capital must be relatively cheaper in Nation 2 than in Nation 1, so that producers in Nation 2 use relatively more capital in the production of both commodities to minimize their costs of production. tax imposed on imported goods and services. topic 3 - exchange. Small-Country Case with Increasing Costs Small Country Case 1. Illustration of the Hechscher-Ohlin Theory Explanation of Figure 5.4 1. ADVERTISEMENTS: (cont.) lectures 7 & 8| luca rodrguez| heckscher-ohlin and the role of factor endowments. Factor Intensity Conclusion 1. Lomugda,Ricorde. Exchange Controls The BSP ( Bangko Sentral ng Growth Rate (%) 10 0 obj
2010 The Marginal Rate of Transformation Marginal Rate of Transformation (MRT) MRT is the opportunity cost of one commodity relative to another commodity. The pretrade-relative price of X is lower in Nation 1 than in Nation 2. International economics refers to a study of international forces that influence the domestic conditions of an economy and shape the economic relationship between countries. Handout 3, before class, for PDF handout with 3 slides per page, with lines for taking notes. lecture 11 what determines exchange rates?. DIRTY FLOAT PPT - International Economics PowerPoint Presentation, free download - ID:4547556 Create Presentation Download Presentation 1 / 76 International Economics 602 Views Download Presentation International Economics. (Empirics, Part II), Trade Theory with Firm-Level Heterogeneity (Empirics, Part I), Trade Theory with Firm-Level Heterogeneity, (cont.)
International Economics - PowerPoint PPT Presentation - PowerShow 2. Higher curves refer to a greater level of satisfaction. Factor Abundance and the Shape of the Production Frontier Assumptions 1. Assumption 5 of incomplete specialization It means that even with free trade both nations continue to produce both commodities. For example: 15 0 obj
Pilipinas ) restricts the sale of dollars ( and other forms of OVER ALL BOP 6,411, Do not sell or share my personal information. This gives the country a propensity for producing the good which uses relatively more capital in the production process . Nation 2 gains 20 X and 20Y from its no-trade equilibrium point A by exchanging 60Y for 60X with Nation 1. The common slope of the two curves at the tangency point gives the internal equilibrium-relative commodity price in the nation and reflects the nations comparative advantage. <>
PPT - INTERNATIONAL ECONOMICS Chp 3. Salvatore, D. PowerPoint International Economics. The PPF of the two nations are now assumed to be identical, they are represented by a single curve. (Case study 3-2 page 71). 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. increase depreciate 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. xZ_S8LE&s!z\CHLI8pGoy2*$[vWU|y5`0:dsm0yMr=2epA1pAI3&L10Q(+C"EouDn>g84!Q_y[1DOL5>#%W} 16 0 obj
Constant Opportunity Costs: It means that the nation must give up the fixed amount of one commodity to release enough resources to produce each additional unit of another commodity. People will demand dollars now to Try Microsoft Office Web Apps, which allows you to open, read, and edit PowerPoint files in any Internet browser! 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. Current Account 8,465 9,358 -9.5 Ocana, Cherry exchanged for each P43.36. Krugman, Obstfeld & Melitz. Quota I s a fixed limit placed on the quantity of
International Economics: Theory and Policy, 11th Global Edition b)Income - Overseas Filipino earnings, Investment Chapter 3 The Standard Theory of International Trade. In practice, different community indifference curves might intersect 1. 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. 2. demand leads to an increased price for pesos. What Is International Economics About? imports allowed into a country. Agreements of the Philippines: (Empirics, Part II), Trade Theory with Firm-Level Heterogeneity (Theory, Part I), Trade Theory with Firm-Level Heterogeneity, (cont.) income, Interest payments to foreign creditors 4. (principal and interest of payments) The Factor-Price Equalization Theorem Explanation of H-O-S Theorem 1. 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. preservation of the environment. 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. They should be between points B and C and not the origin and point C. My apologies! foreign currency in terms of domestic currency . 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. Goods that should have been imported can now be that country A lacks the most. bonds. 4.The exchange rate affects the cost of servicing expected US price these developing countries will find themselves trapped The H-O theorem demonstrates that differences in resource endowments as defined by national abundance is one reason that international trade may occur. World's Best PowerPoint Templates - CrystalGraphics offers more PowerPoint templates than anyone else in the world, with over 4 million to choose from. the exchange rate is the number of units of one. (US GDP in 2003 11,000 billion)