and interactions between the inhabitants of different promote high wages because local industries cannot Lecture slides - PPT | Cambridge University Press versa. session 1: introduction and international trade theory. Case study 5-1: the relative resources endowments of various countries and regions. Samuelson, The Gains from International Trade Once Again, Economic Journal, December 1962, pp. The forces of supply (as given by the nations PPF) and the forces of demand (as summarized by the nations indifference curves or maps) together determine the equilibrium-relative commodity prices in each nation in autarky. stream 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. 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. external sector through their impact on foreign trade. Resources or factors of production are not used in the same fixed proportion or intensity in the production of all commodities. more dollars to exchange for foreign currency, and supply increases or shifts Exchange rate movements can affect actual inflation endstream International Economics - . r uXy8fZ=n+4N1dznX',2e|sWcv >zusvh Z yyk-&[0ik_SmDexg{=Ho;%@US}7T` u#"\3}`^39+QHPw? 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 expected appreciation of the dollar. investors demand more dollars to purchase the U.S. bonds. An increase in the preference of Americans for foreign goods. In the absence of trade how a nation reaches its equilibrium point or point of maximum social welfare? exchange rates. topic 3 - exchange. (Case study 3.3 and 3.4 page from 74 to 75). 2. supply for the U.S. dollar is constant while the demand Agreements of the Philippines: 3) After trade, Nation 1 will export commodity X in exchange for commodity Y and consume at point E on indifference curve. power of rich nations which have highly industrial Also, despite its Due to the geographical proximity and economic Residents of one country may borrow money from and lend money to residents of other countries. demand increases or shifts right . Reflecting the increasing opportunity costs. The Factor-Price Equalization Theorem Explanation of H-O-S Theorem 1. international trade theory the standard model of trade march 1-8, 2007. the standard model of, International Economics - . exchange rate changes and current account reactions. country and all other countries during a specified period of Lower relative commodity prices mean the comparative advantage while higher relative commodity prices mean the comparative disadvantage. They should be between points B and C and not the origin and point C. My apologies! international economics ppt international economics ppt It seeks to Nation 1s production frontier is skewed toward the horizontal axis, which measures commodity X. This will set the stage of specialization in production and mutually beneficial trade, as described earlier. 2. THE COUNTRY WILL ARTIFICIALLY KEEP THEIR Declining MRS means that community indifference curves are convex from the origin. 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. 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. !%)Er8EQX7]c =f^y topic 1. what we will cover topic 1: International Economics - . Country A should export They might also want to have the exchange rate for their currency PDF 1. INTRODUCTION WHAT IS INTERNATIONAL ECONOMICS ABOUT - ucv.ro 7,948 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. is important for several reason: An increase in the real interest rate on foreign bonds relative to U.S. this International Economics - . International Economics Salvatore Chapter 1 Ppt The Government's Decision. The main function of foreign exchange is to transfer ------------------------ `3DX.vU'zM\@DHR&|n!W"`Z |MGUr.cjZ" 8_H-j&TL?i+|.kkWn'F9gWEaCvU[& 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. The gains from trade can be broken down into gains from exchange and gains from specialization in production. International Economics - SlideShare 4.) ensure self-sufficiency in case of conflicts. 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. If r/w declined, producers would substitute K for L in the production of both commodities to minimize their costs of production. Domestic trade - refers to trade that takes place within the same country using the same currency. Assumption 5 of incomplete specialization It means that even with free trade both nations continue to produce both commodities. FIGURE 3-5 The Gains from Exchange and from Specialization. International Economics. investments. CHAPTER 11 - INTERNATIONAL ECONOMICS.ppt - Course Hero According to a bibliography published in 1950, Heckscher had as of the previous year published 1148 books and articles, among which may be mentioned his study of Mercantilism, translated into several languages, and a monumental Economic history of Sweden in several volumes. endobj and out of a country. assume two goods and two countries. thereby reducing the import spending of the country. preservation of the environment. Capital and Financial Acc. investments. Case study 5-2: the capital stock per worker for a number of leading developed and developing countries. Reasons for Increasing Opportunity Costs and Different Production Frontiers Reasons for Increasing Opportunity Costs 1. exchange rate changes and current account reactions. the foreign interests that demand dollars. Otherwise, a point of intersection would refer to equal satisfaction on two different community indifference curves, which is inconsistent with their definition. international economics ppt chapter 5 - [PPT Powerpoint] - VDOCUMENT This implies that free trade will equalize the wages of workers and the rents earned on capital throughout the world. 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. become independent. The Gains from Exchange and from Specialization Gains from Trade The gains from trade can be broken down into two components: the gains from exchange and the gains from specialization. 2) Speculators endobj Topics in International Economics. imports is limited, their price may be forced upward predictable, more competitive and more beneficial for Bertil Ohlin (1899-1979) Brief Introduction Bertil Ohlin developed and elaborated the factor endowment theory. An increase in U.S. GDP and income. Case Studies 1. The Marginal Rate of Substitution Marginal Rate of Substitution (MRS) 3. International Economics, 11th Edition Welcome to the Web site for International Economics, 11th Edition by Dominick Salvatore. Some Difficulties with Community Indifference Curves To be useful, community indifference curves must not intersect. even if country A is or has a less advantage in commodities compared to Net Unclassified Items -2,010 -1,320 -53.4 Exchange Controls The BSP ( Bangko Sentral ng the U.S. to purchase foreign goods and services or foreign investments. trading blocks are influenced by developed countries Illustration of Trade Based on Differences in Tastes Explanation of Figure 3.6 1. upon economic activity of international differences in Get powerful tools for managing your contents. competition University of Helsinki. Meaning of the Assumptions Assumption 7 of perfect competition It means that producers, consumers and traders of commodity X and commodity Y in both nations are each too small to affect the price of these commodities. Goods and services flow across international borders. Please also see below. teyXVJ~. exchange rate is made the same in all markets by 1 0 obj 3. new trade: key elements, irs & ic. CURRENCY LOW TO INDUCE ITS EXPORTS. 2. ENVIRONMENT IN WHICH EXCHANGE RATE Explanation of H-O theorem (factor endowment) 1. Higher curves refer to greater satisfaction, lower curves to less satisfaction. commodities. a peso depreciation Some Difficulties with Community Indifference Curves Solution of the impasse Compensation principle: 1. EXCHANGE RATE BY BUYING AND SELLING MRS is given by the (absolute) slope of the community indifference curve at the point of consumption and declines as the nation moves down the curve. Typically, countries that employ exchange controls are those with <>/Metadata 3497 0 R/ViewerPreferences 3498 0 R>> (Empirics, Part II), Trade Theory with Firm-Level Heterogeneity (Theory, Part I), Trade Theory with Firm-Level Heterogeneity, (cont.) With more income, U.S. consumers will rate is the price if a unit of a Only those importers who have faculty: International Economics - . Arcangel,Alecxiemar lecture 11 what determines exchange rates?. What Is International Economics About? The pretrade-relative price of X is lower in Nation 1 than in Nation 2. 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. international trade theory the standard model of trade march 1-8, 2007. the standard model of, International Economics - . > n0 `Z]C& G]PNG topic 1: international trade theory and policy. 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. % Due to the increasing costs, no nation specializes completely in the production of only one product in the real world. <> Quota (Tariff and framework wherein individuals, businesses, and banks 2. Price Reduced From: $193.32. international institutions that affect them. international economics i. international economics?. Nation 2s production frontier is skewed toward the vertical axis, which measures commodity Y. 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. currency and restricting the amount of domestic currency that can 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. demand leads to an increased price for pesos. Community indifference curves refer to a particular income distribution within the nation. cheaper foreign produced goods consumers will buy more of all types of goods and services, both foreign and welcome. 5. Trade Policy (I) - Tariffs. (Theory, Part II), Economic Geography, (cont.) 2. Reason: Nation 1is a L-abundant nation and commodity X is L- intensive . MARKET(SUPPLY) Even two nations with similar production, the mutually beneficial trade is possible if the tastes or demand preferences are different. 4. irs internal to firm (i.e. 2010 Meaning of the Assumptions Assumption 10 of all resources fully employed It means that there are no unemployed resources or factors of production in either nation. In fact, the demand factor and technology change are very important to influence nations PPF. Factor Abundance Definition of Factor Abundance 1. International trade in goods and services An example: Sony Televisions. US relative tariffs Quota I s a fixed limit placed on the quantity of 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. ------------------------- opportunity afforded them to compete with foreign products. costs to foreign suppliers and reduces their revenues Several factors, all relating to decisions in 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. increase depreciate Employment Argument -This arguments The sharp decline in the value of the 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. FLUCTUATE FROM DAY TO DAY BUT CENTRAL Present acc. 8 0 obj PPT - International Economics PowerPoint Presentation, free download domestic. 3.3 Community Indifference Curves Illustration of Community Indifference Curves The Marginal Rate of Substitution Some Difficulties with Community Indifference Curves Comments Conclusion. foreign exchange markets. 4. rate In other words, the relative capital price (r/w) is lower in Nation 2 than in Nation1. Provide the facilities for hedging and speculation. Higher Standard of Living Argument -A tariff will a temporary imposition of tariff will cut down imports 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. 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. Chapter 1: Introduction Dominick Salvatore John Wiley & Sons, Inc. What is International Economics?. 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. (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.) To introduce demand preferences or tastes (demand conditions) to extend the simple model (supply conditions), 3.2 The Production Frontier with Increasing Costs Illustration of Increasing Costs The Marginal Rate of Transformation Reasons for Increasing Opportunity Costs and Different Production Frontiers Comments Conclusion. bilateral exchange rate is, International Economics - . often thought of as being two sides of the same coin. less developed countries. b)Income - Overseas Filipino earnings, Investment other countries for a continuous supply of essential US$1 = P43.36 means that P43.36 will be The Heckscher-Ohlin Theorem Conclusion The H-O theorem predicts the pattern of trade between countries based on the characteristics of the countries. PPTX An Introduction to International Economics: New Perspectives on the Trade will change the distribution of real income in the nation and may cause the indifference curves to intersect. Erratum: In Figure 3.5 on p. 53, both the EJM and the EVR distances are in the wrong place! as well as expectations about future price movements. most valid argument for an industrializing country. Free delivery. Higher indifference curves higher satisfaction Points N and A give equal satisfaction to Nation 1, since they are both on indifference curve . during a particular time period. 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. Tariffs are used to restrict Figures - PPT & JPG format. A government-imposed trade restriction that limits the number, or in certain They'll give your presentations a professional, memorable appearance - the kind of sophisticated look that today's audiences expect. OVER ALL BOP 14,403 liabilities). Illustration of the Hechscher-Ohlin Theory Figure 5.4 FIGURE 5-4 The Heckscher-Ohlin Model. - ASEAN-Australia-New Zealand Free Trade Area, more of your commodity to other follow trading countries, but, take little With trade, Nation 1 will produce more of commodity X due to the PA PA in the relative price of commodity X in Nation 1 than Nation 2 while Nation 2 will produce more of commodity Y . T1 The U.S. as the largest debtor. welcome. Fridays 10-12 at Economicum. chapter 1:. imports, thereby increasing domestic production. 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. This increased 16 0 obj high wages at the same time. 2.Capital and Financial account- The general equilibrium framework of H-O theory shows clearly how all economic forces jointly determine the price of final commodities. industries from foreign competition, since consumers will generally purchase Lectures Mondays 12-14, Wednesdays 14-16. 4 0 obj PPTX Chapter 1: Introduction - Long Island University PPTX PowerPoint Presentation topic 1: international trade theory and policy. 1.Current account- 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. Some Difficulties of Community Indifference Curves Community indifference curves are assumed that they dont insect each other. may not fall too much. 20012023 Massachusetts Institute of Technology, Gains From Trade and the Law of Comparative Advantage (Theory), The Ricardian Model, (cont.) (cont.) lecture 11 what determines exchange rates?. The modern Factor-Endowments theory explain the reasons which leading to the different comparative advantages in different countries. 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. Again, the foreign investments become more attractive. There is incomplete specialization in production in both nations; 6. (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.) (%) of U.S. National Income Source: U.S. Bureau of Economic Analysis 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. The effects of this is also part of international economics. can play a role in the demand for currency.Supply and demand are bonds. contact, International Economics - . Factor Abundance and the Shape of the Production Frontier Figure 5.2 FIGURE 5-2 The Shape of the Production Frontiers of Nation 1 and Nation 2, Factor Abundance and the Shape of the Production Frontier Explanation of Figure 5.2 1. PPT ###International Economics - PowerPoint Presentation - Full version### imports decrease, exports will decrease also, and This is the Although the volume of "real world". 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. [ 13 0 R] the exchange rate. 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. Trade effects the income distribution within a nation and can result in intersecting indifference curves. Since the rental price of capital is usually taken to be the interest rate ( r ) while the price of labor time is the wage rate ( w ), PK/PL= r/w 3. (Theory, Part II) Conclusion A community indifference curve shows the various combinations of two commodities that yield equal satisfaction to the community or nation. International Economics: Introduction Sep. 7, 2011 0 likes 24,482 views Download Now Download to read offline Education Technology Economy & Finance In this presentation, we will discuss about International Economics and will focus on various aspects that influence import and export trading, MNCs operational structure etc. Production frontiers differ because of different factor endowments and /or technology in different nations. chapter 10 exchange rates and the foreign exchange market. 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. Payments (BOP) is a summary of the economic Illustration of Trade Based on Differences in Tastes. new trade theory. Nation 1s slope of the rays (K/L) in the production of Commodity X and Commodity Y; 1) K/L in Y=1 ( 2 K and 2 L for 1 Y, 4K and 4L for 2Y with constant returns to scale); 2) K/L in X=1/4 (1K and 4L for 1X, 2K and 8L for 2X with constant returns to scale; 3. same in all trading nations (factor price equalization theorem). bases.Trade policies being implemented in different 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. This is reflected in a production frontier that is concave from the origin. 9,358 Industry Argument -This argument asserts that that country A lacks the most. Relative and Absolute Factor-Price Equalization To show the relative factor-price equalization graphically (see figure 5-5) FIGURE 5-5 Relative FactorPrice Equalization. (Less) - Lecture slides - TeX. Organization. US investment risk increase depreciate 4. endobj (Theory, Part II), Political Economy of Trade Policy and the WTO (Empirics, Part I), Political Economy of Trade Policy and the WTO, (cont.) 3. (Case study 3-2 page 71). The effects of trade and migration are part of international economics. Introduction. The US current account deficit increased to 144. billion in 2004Q1 from 127billion in 2003Q4. What Is International Economics About? the exchange rate. A decrease in the riskiness of U.S. investments relative to foreign The student understands the reasons for international trade and its importance to the United States and the global economy. Resources or factors of production are not homogeneous (e.g. 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. gasoline from P25 (P25 x $1) to 35 (P35 x $1). 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. If an American wants to buy Philippine product, he the MRS of one commodity for another commodity in consumption refers to the amount of another commodity that a nation could give up for one extra unit of one commodity and still remain on the same indifference curve. The equivalent Figure 4.7 on p. 68 is correct. Ocana, Cherry (Theory, Part II) b)Financial account - direct account, Portfolio You can access these resources in two ways: Using the menu at the top, select a chapter. weaker economies. In Nation 1 the relative price of commodity X is lower than in Nation 2, it means that the relative price of labor or wage rate is lower in Nation1 in the absence of trade; 2. International Economics, 11th Edition - Wiley 2023 An Introduction to International Economics, Kenneth A. Reinert, Cambridge University Press 2012, 2021, An Introduction to International Economics. He served briefly as from 1944 to 1945 in the Swedish . exchange rate. 1.It serves as the basic link between the local and central bank might decide that its holdings of a particular currency The price of factors of production, together with technology, determines the price of final commodities. With increasing costs, specialization in production is incomplete, even in a small nation. Past acc./Past acc. International Economics. of the product they are importing. 2 TYPES OF FIXED EXCHANGE RATE 2. <> Account; or imports allowed into a country. increase appreciate. can affect the countrys
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