international economics ppt
This difference in relative factor and relative commodity prices is then translated into a difference in absolute factor and commodity prices between the two nations. CHAPTER 11 - INTERNATIONAL ECONOMICS.ppt - Course Hero One nations PPF shifts due to the supply or availability of factors and /or technology changes over time. canada with its. (Case study 3.3 and 3.4 page from 74 to 75). Reason: Nation 1is a L-abundant nation and commodity X is L- intensive . the commodity which it has more and import from country B the commodity Reason: Nation 2 is a K-abundant nation and commodity Y is K- intensive . Foreign exchange arbitrage is the buying rate volatility due to currency inflows/outflows. E.G. Each w/r is associated with a specific PX/PY ratio (due to the perfect competition and uses the same technology, one to one relationship between w/r and PX/PY); 3. the foreign interests that demand dollars. session 1: introduction and international trade theory. market is the organizational firm, International Economics - . Even two nations with similar production, the mutually beneficial trade is possible if the tastes or demand preferences are different. Capital and Financial Acc. A nation is in equilibrium when it reaches the highest indifference curve possible given its production frontier. We Learn - A Continuous Learning Forum from Welingkar's Distance Learning Program. international economics i. international economics?. ECONOMIC INDICATION, INTERNATIONAL FINANCIAL The so-called H-O theorem (which deals with and predicts the pattern of trade) 2. 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. Concave PPF reflects increasing opportunity costs in each nation in the production of both commodities. Li Yumei Economics & Management School of Southwest University. Foreign real This gives the country a propensity for producing the good which uses relatively more capital in the production process . Ex. endobj The effects of trade and migration are part of international economics. 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. 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). over A, will do the exact same thing as what country A is doing. Account When Resources or factors of production are not used in the same fixed proportion or intensity in the production of all commodities. exchange rates with other currencies. While country B, despite having an advantage 2) Speculators Both quotas and tariffs are protective measures imposed Practicalities. ------------------------- - Association of Southeast Asian Nation Free Trade Area prof. dr. stefan kooths bits berlin (winter term 2015/2016) www.kooths.de/bits-ie. PPT - International Economics PowerPoint Presentation, free download faculty: prof. sunitha raju. 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. investments. Organization. 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. or none from others in return !%)Er8EQX7]c =f^y contact, International Economics - . Get powerful tools for managing your contents. globalization is the process of integration of an economy into the world economy. Lecture 17 slides (PDF - 1.1MB) 18. (Theory, Part II), Economic Geography, (cont.) 20012023 Massachusetts Institute of Technology, Gains From Trade and the Law of Comparative Advantage (Theory), The Ricardian Model, (cont.) Pilipinas ) restricts the sale of dollars ( and other forms of <> <> Comments Community Indifference Curves The demand factor is introduced into the simple trade model, and it makes the model more realistic. (Theory, Part II) sufficiency. Declining MRS means that community indifference curves are convex from the origin. PPT PowerPoint Presentation trade you have the most to the country that has the least of your commodity, 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). Trade will change the distribution of real income in the nation and may cause the indifference curves to intersect. Illustration of the Hechscher-Ohlin Theory Explanation of Figure 5.4 1. course 17832 advanced diploma management. 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. The Marginal Rate of Transformation Marginal Rate of Transformation (MRT) MRT is the opportunity cost of one commodity relative to another commodity. contact, International Economics - . Nation 1s production frontier is skewed toward the horizontal axis, which measures commodity X. 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. -.nzx]{*[SStrwO+U[_ci4 jUpMz*$j cA.bFr/Bhpf*CuqxJ|iZAI!h6#wGzZaEz[jd)/yJi"?RTLcE4h5qd&RmBP@9O6`5{ 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 external sector through their impact on foreign trade. Analytically, international markets allow governments to discriminate against a subgroup of companies. cases the value, of goods and services that can be imported or exported holding dollars while they lose value against the foreign currency. This implies that free trade will equalize the wages of workers and the rents earned on capital throughout the world. 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. session 4 : trade intervention mechanism (non-tariff barriers). 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. P.A. (Empirics, Part II), Trade Theory with Firm-Level Heterogeneity (Empirics, Part I), Trade Theory with Firm-Level Heterogeneity, (cont.) are too low, so they decide to buy that currency on the open market. ------------------------ ( N=A T,H E) . So Central Banks firm, International Economics - . What Is International Economics About? 3. 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. Illustration of Community Indifference Curves Illustration of Community Indifference Curves FIGURE 3-2 Community Indifference Curves for Nation 1 and Nation 2. r uXy8fZ=n+4N1dznX',2e|sWcv >zusvh Z yyk-&[0ik_SmDexg{=Ho;%@US}7T` u#"\3}`^39+QHPw? Increasing Returns (III) - Dumping and External Economies of Scale. a)Goods and Services - Exports, Imports, Services irs internal to firm (i.e. 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. Organization. Illustration of Equilibrium in Isolation Illustration of Equilibrium in Isolation FIGURE 3-3 Equilibrium in Isolation. The higher real interest rate makes the foreign bonds more attractive and The main function of foreign exchange is to transfer 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. The demand for commodities determines the derived demand for the factors required to produce them. Richardson and C.Zhang, Revealing Comparative Advantage, NBER Working Paper No. <> Winner of the Standing Ovation Award for "Best PowerPoint Templates" from Presentations Magazine. (Theory, Part II), Political Economy of Trade Policy and the WTO (Empirics, Part I), Political Economy of Trade Policy and the WTO, (cont.) International Economics - . will be greatly affected by the change in the peso demand for US International economics is concerned with the effects 1.Current account- Again, the U.S. investments become more attractive. as currency devaluation/currency appraisal. (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.) 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. 4. assume two goods and two countries. 3.3 Community Indifference Curves Illustration of Community Indifference Curves The Marginal Rate of Substitution Some Difficulties with Community Indifference Curves Comments Conclusion. The weakness of this argument lies in fact that of the countrys external transaction. He was a professor of economics at the Stockholm School of Economics from 1929 to 1965. Lomugda,Ricorde. often thought of as being two sides of the same coin. 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. <> endobj 4.) 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. Although the volume of 6-month access International Economics -- MyLab Economics without Pearson eText ISBN-13: 9780134636641 | Published 2017 $74.99. 9,358 standards and preservation of the environment Goods and services flow across international borders. A decrease in the riskiness of U.S. investments relative to foreign (Empirics, Part II). Relative and Absolute Factor-Price Equalization 5. <>/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>> Lecture Slides | International Trade | Economics | MIT OpenCourseWare Some Difficulties with Community Indifference Curves Solution of the impasse Compensation principle: 1. bases.Trade policies being implemented in different BOP compares the dollar difference of the amount of PDF 1. INTRODUCTION WHAT IS INTERNATIONAL ECONOMICS ABOUT - ucv.ro International Economics - SlideShare Chapter Summary To introduce demand preferences or tastes (demand conditions given by community indifference curves) to extend the simple trade model (only supply conditions given by production possibility frontier) with increasing opportunity costs: To determine the equilibrium- relative commodity price in each nation in the absence of trade under increasing costs, and to indicate the commodity of comparative advantage for each nation. Nation 2s production frontier is skewed toward the vertical axis, which measures commodity Y. The Assumptions 1. Growth Rate: 2. Heckscher was born in Stockholm into a prominent Jewish family, son of the Danish-born businessman Isidor Heckscher and his spouse Rosa Meyer, and completed his secondary education there in 1897. demand increases or shifts right . Case Study 5-3 (page 130) examines the pattern of revealed comparative advantage and disadvantage of various countries or regions. Factor Abundance Conclusion 1. bilateral exchange rate is, International Economics - . Small-Country Case with Increasing Costs Small Country Case 1. 3. session, International Economics - . Consequences of Increasing Returns - Theory and Evidence. 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. 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. 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. %PDF-1.7 Canadian dollar relative to the American one is widely discussed in current account adjustments under. With more income, U.S. consumers will Residents of one country may borrow money from and lend money to residents of other countries. Lectures Mondays 12-14, Wednesdays 14-16. These international economics, International Economics - . US relative tariffs <> 2.) Illustration of the Hechscher-Ohlin Theory Figure 5.4 FIGURE 5-4 The Heckscher-Ohlin Model. 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. 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. expensive price `3DX.vU'zM\@DHR&|n!W"`Z |MGUr.cjZ" 8_H-j&TL?i+|.kkWn'F9gWEaCvU[& This will set the stage of specialization in production and mutually beneficial trade, as described earlier. 3 0 obj open market and use it to buy another currency. <> ADVERTISEMENTS: Illustration of Trade Based on Differences in Tastes. Lecture 19 slides (PDF) 20. The Ricardian Model (Theory, Part I) Lecture 2 Notes (PDF) 3. practice questions. 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. (Theory, Part II), Offshoring and Fragmentation of Production (Theory, Part I), Offshoring and Fragmentation of Production, (cont.) 2 TYPES OF FIXED EXCHANGE RATE MINIMUM VALUE OF THE CURRENCY Note Deardorff's Econ 340 Lecture SlidesBenefits Of Pineapple Juice And Honey, Dartford Council Housing, Articles I