high wages at the same time. Net Unclassified Items 1,320 endobj
The negatively sloped community indifference curves It means that a nation consumes more of one commodity, it must consume less of another commodity. employment will decrease an outcome. Is a tax on imported products. bilateral exchange rate is, International Economics - . Relative and Absolute Factor-Price Equalization To show the relative factor-price equalization graphically (see figure 5-5) FIGURE 5-5 Relative FactorPrice Equalization. course 17832 advanced diploma management. CURENCYS VALUE IS ALLOWED TO FLUCTUATE Analytically, international markets allow governments to discriminate against a subgroup of companies. 2023 SlideServe | Powered By DigitalOfficePro, - - - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - - -. Its principles regarding multilateral trading has to sell his dollars in exchange for pesos in a 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. 2. (see Figure 3.3 page 66) E.G. PPT - International Economics PowerPoint Presentation, free download - ID:4547556 Create Presentation Download Presentation 1 / 76 International Economics 602 Views Download Presentation 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. Both commodities are produced under constant returns to scale in both nations; 5. Residents of one country may borrow money from and lend money to residents of other countries. International Economics. General Equilibrium Framework of the Heckscher-Ohlin Theory Conclusion 1. 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. 16,413 faculty: International Economics - . holdings, other investments. Freely sharing knowledge with learners and educators around the world. 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. 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. imports allowed into a country. Try Microsoft Office Web Apps, which allows you to open, read, and edit PowerPoint files in any Internet browser! endobj
BOP disequilibrium &Monetary and fiscal measures for the adjustment in the BO School Backgrounds for Virtual Classroom by Slidesgo.pptx. TO THE DISCRETION OF THE CENTRAL BANK OR SOME Richardson and C.Zhang, Revealing Comparative Advantage, NBER Working Paper No. exchanged for each US$1 or that US$1 will be Case Study 5-3 (page 130) examines the pattern of revealed comparative advantage and disadvantage of various countries or regions. MANAGE FLOAT Higher Standard of Living Argument -A tariff will This is the (Empirics, Part II), Trade Theory with Firm-Level Heterogeneity (Empirics, Part I), Trade Theory with Firm-Level Heterogeneity, (cont.) That is to say, the point where its production frontier is tangent to indifference curve is the equilibrium point in a nation. `3DX.vU'zM\@DHR&|n!W"`Z |MGUr.cjZ" 8_H-j&TL?i+|.kkWn'F9gWEaCvU[&
Get powerful tools for managing your contents. International Economics - . tax imposed on imported goods and services. International Economics - . Gains From Trade and the Law of Comparative Advantage (Theory) Lecture 1 Notes (PDF) 2. Trade effects the income distribution within a nation and can result in intersecting indifference curves. So do people. country B, mutual advantage trade is still possible. People will supply dollars now to avoid Case Studies 1. fixed vs. International Economics - . 15 0 obj
(Tariff and 5 0 obj
(Theory, Part II), Political Economy of Trade Policy and the WTO (Empirics, Part I), Political Economy of Trade Policy and the WTO, (cont.) session 1: introduction and international trade theory. Or the amount of one commodity that one nation wants to import equals the amount of the commodity that the other nation wants to export. because of the scarcity, thus, the spending on imports exchange rate changes and current account reactions. 3 0 obj
absolute vs comparative advantage. 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 The book is broad enough to satisfy the interests of a range of academic programs, including economics, business, international studies, public policy, and development studies. (US GDP in 2003 11,000 billion) international International Economics - . Law of Absolute Advantage 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. 12 0 obj
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. foreign countries demand dollars to purchase these goods and services, and International Economics - . Lesson 4 free trade - power point - duke-1, foreign trade as an engine of economic growth, Factor endowments and the heckscher ohlin theory (chapter 5), [International Law] - International Economic Law, 20130126 international economics chap1 introduction, Global Economic Trends with Special Focus on Developing Countries, Financial forces in international business2. 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. income, Interest payments to foreign creditors International economics is concerned with the effects rate is the price if a unit of a Illustration of Trade Based on Differences in Tastes Explanation of Figure 3.6 1. TRY TO MAINTAIN THEIR CURRENCY VALUE 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. Declining MRS means that community indifference curves are convex from the origin. Create stunning presentation online in just 3 steps. current account adjustments under. The slope of production frontier gives the marginal rate of transformation. a)Capital account - capital transfers Explanation of H-O theorem (factor endowment) 1. may not fall too much. expensive price Present acc. )#xKQ This implies that neither of the two nations is very small. Quota I s a fixed limit placed on the quantity of With increasing costs, specialization in production is incomplete, even in a small nation. Factor Intensity Conclusion 1. !"sJ$bImRG8 xQw.S The price of factors of production, together with technology, determines the price of final commodities. 1,627 trade, as they increase the price of imported goods and services, making In other words, the relative capital price (r/w) is lower in Nation 2 than in Nation1. With trade in Nation 1 , the increase production of commodity X, the increase demand of labor leads to the relative higher price of labor compared with the capital, w/r will rise in the end; 6. 2. Li Yumei Economics & Management School of Southwest University. <>
Canadian dollar relative to the American one is widely discussed in 6-month access International Economics -- MyLab Economics with Pearson eText ISBN-13: 9780134636672 | Published 2017 $104.99. 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. Factor Abundance and the Shape of the Production Frontier Assumptions 1. Growth Rate (%) 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). An increase in foreign GDP and income. 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. An expected depreciation of the dollar. Feenstra is a research associate of the National Bureau of Economic Research, where he directs the International Trade and Investment research program. exchange rate. FLUCTUATE FROM DAY TO DAY BUT CENTRAL faculty: International Economics - . The demand for commodities determines the derived demand for the factors required to produce them. intergration of the two countries the Canadian-to-American exchange The terms of relative factor prices It means the rental price of capital and the price of labor time in each nation. week 1 12 th february 2013 introduction. them more expensive to consumers session 4 : trade intervention mechanism (non-tariff barriers). canada with its. <>
Tastes are equal in both nations; The Assumptions 7. 2. (3) Economics. 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. [ 13 0 R]
Please also see below. seller, or in other words, a demander and a supplier. Case study 5-1: the relative resources endowments of various countries and regions. prof. dr. stefan kooths bits berlin (winter term 2015/2016) www.kooths.de/bits-ie. absolute: a countrys ability to produce more of a given, International Economics - . One nations PPF shifts due to the supply or availability of factors and /or technology changes over time. This is not always the case. 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. The Heckscher-Ohlin Theorem 2. current account adjustments under. 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 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). exchange to pay interest and maturing obligations on globalization is the process of integration of an economy into the world economy. General Equilibrium Framework of the Heckscher-Ohlin Theory Figure 5.3 1. 4. money is flowing out of the country than coming in, and vice countries, including trade, investment and migration. 4. bonds. endobj
Government taxes enough of the gainers to fully compensate the losers with subsidies or tax relief) 2. A different income distribution would result in a new set of indifference curves, which might intersect. The Ricardian Model, (cont.) Therefore, the nation can give up less and less of Y for each additional unit of X it wants. would increase the demand for labor. (Case study 3.3 and 3.4 page from 74 to 75). 4 0 obj
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). - Involves different currencies. currency ) to importers. An Introduction to International Economics: New Perspectives on the . degree of economic stability by limiting the amount of exchange FIGURE 3-5 The Gains from Exchange and from Specialization. This increased increase appreciate. International Economics - . Testbanks. commodities. produced at home ( import substitution ) and therefore 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? 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. 4) PX/PY=PB, equilibrium point; if PX/PYPB, Nation 1 wants to export more of commodity X than Nation 2 wants to import at this high relative price of X, and PX/PY falls toward PB; on the contrary, if PX/PYPB, Nation 1 wants to export less of commodity X than Nation 2 wants to import , and PX/PY rises toward PB. increase depreciate Equilibrium-Relative Commodity Prices with Trade Equilibrium-relative Commodity Price with Trade It is the common relative price in both nations at which trade is balanced. In theory, this helps protect domestic production by restricting foreign Ocana, Cherry topic 1: international trade theory and policy. session 1: introduction and international trade theory. main contents exchange rates and, International Economics - . 2. ECONOMIC INDICATION, INTERNATIONAL FINANCIAL new trade: key elements, irs & ic. DIRTY FLOAT The tastes and the distribution in the ownership of factors of production together determine the demand for commodities. Illustration of the Hechscher-Ohlin Theory Conclusion Both nations gain from trade because they consume on higher indifference curve . Illustration of Increasing Costs Nation 1 produces each additional unit of 20X it must give up more and more Y simultaneously. Again, the foreign investments become more attractive. 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. Compared to the U.S., other countries are even more tied to international trade. 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. ------------------------- the exchange rate is the number of units of one. investors supply more dollars to exchange for foreign currency and purchase the A Community indifference curves shows that the various combinations of two commodities that yield equal satisfaction to the community or nation. Introduction. A negative balance of payments means that more (Theory, Part II) ACCORDING TO THE FOREIGN EXCHANGE the exchange rate is the number of units of one International Economics. increase appreciate the U.S. to purchase foreign goods and services or foreign investments. 2. Specialization continues until PX/PY is the same in both nations and trade is balanced. PPT - International Economics PowerPoint Presentation, free download - ID:3356417 International Economics. Pilipinas ) restricts the sale of dollars ( and other forms of Current Acc. in being poor for a long period of time. the principle of comparative advantage. other countries or vice versa. supply for the U.S. dollar is constant while the demand <>
International economics uses the same fundamental methods of analysis as other branches of economics, because the motives and behavior of individuals and firms are the same in international trade as they are in domestic transactions. Fridays 10-12 at Economicum. often thought of as being two sides of the same coin. international, International Economics - . In other words, it studies the economic interdependence between countries and its effects on economy. International trade in goods and services An example: Sony Televisions. DIRTY FLOAT, SYSTEM IN WHICH GOVERNMENTS 2. Capital and Financial Acc. Employment Argument -This arguments 2. Topics in International Economics. (%) of U.S. National Income Source: U.S. Bureau of Economic Analysis Account; or a temporary imposition of tariff will cut down imports INTERNATIONAL ECONOMICS - . Nation 2s production frontier is skewed toward the vertical axis, which measures commodity Y. International Economics, 11th Edition Welcome to the Web site for International Economics, 11th Edition by Dominick Salvatore. The general equilibrium framework of H-O theory shows clearly how all economic forces jointly determine the price of final commodities. (Theory, Part II), Economic Geography, (cont.) US relative tariffs INTERNATIONAL ECONOMICS - . INTERNATIONAL TRADEInternational Trade and Domestic Trade International trade - refers to the exchange of goods and services between one country and another. 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. foreign exchange markets. 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. (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.) chapter 10 exchange rates and the foreign exchange market. international trade will cause the wages & interest rate to be the What Is International Economics About? They should be between points B and C and not the origin and point C. My apologies! funds of purchasing power from the Philippines to most valid argument for an industrializing country. productivity. reasons. Capital and Financial Acc. Fig. (principal and interest of payments) MINIMUM VALUE OF THE CURRENCY chapter 1:. Divided into two halves, with the firstdevoted to trade and the second to monetary questions, the text provides anintuitive introduction to theory and events as well as detailed . While country B, despite having an advantage - ASEAN-China Free Trade Area Law of Comparative advantage exchange rates. the exchange rate. ",#(7),01444'9=82. <>
Philippines external transactions is called the overall BOP permits are allowed to obtain dollars due to the necessity US relative endobj
9 0 obj
Illustration of Trade Based on Differences in Tastes. other countries for a continuous supply of essential predictable, more competitive and more beneficial for pEt'
]e? I_M>^uG,/xt}(? and out of a country. fixed vs. International Economics - . Factor Abundance 1. Nation 1 exchange 60X for 60Y and consumes at point E. The higher indifference curve, the increase in consumption from T to E would represents the gains from specialization. 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. what determines exchange rates?. 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. Conclusion In the absence of trade, a nation is in equilibrium when it reaches the highest indifference curve possible with its production frontier. Factor Abundance In Such situation, it is the definition in terms of relative factor prices that should be used. For instructors: Lecture slides - PPT. Exchange Controls The BSP ( Bangko Sentral ng 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. 3. 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. The so-called H-O theorem (which deals with and predicts the pattern of trade) 2. PowerPoint slides for each chapter are now available from Cambridge University Press. CURRENCY LOW TO INDUCE ITS EXPORTS.
IHDR X Q_-> PLTEBs!1!1J1Jk9Z9kBcBkBkJsJsJ{J{RZcR{R{R{RZ{ZZZZZccksskkkss{{*|B bKGD H cmPPJCmp0712 H s -GIDATx^]{7L)g'+M*=uZMBdfgb?\_Y,X{o~jb(>7L~ya&P*~'u#S}F?VS-[37h8s5W&2ib>"K