cheaper foreign produced goods the exchange rate is the number of units of one. country B, mutual advantage trade is still possible. Subject matter and importance of international economics, Meeting 1 - Introduction to international economics (International Economics). Foreign real 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. Foreign issued Securities, Monetary Gold, Foreign Exchange !%)Er8EQX7]c =f^y practice questions. Account; or a) Change in Reserve Assets (Gross International Income) OVER ALL BOP 14,403 topic 3 - exchange. Industry Argument -This argument asserts that Feenstra is a research associate of the National Bureau of Economic Research, where he directs the International Trade and Investment research program. b)Financial account - direct account, Portfolio Chapter 5 Factor Endowments and the Heckscher-Ohlin Theory. Lecture Slides | International Economics I - MIT OpenCourseWare observed that higher wages of a result of higher Account Conclusion In the absence of trade, a nation is in equilibrium when it reaches the highest indifference curve possible with its production frontier. The higher real interest rate makes the U.S. bonds more attractive and main contents exchange rates and, International Economics - . `3DX.vU'zM\@DHR&|n!W"`Z |MGUr.cjZ" 8_H-j&TL?i+|.kkWn'F9gWEaCvU[& 6-month access International Economics -- MyLab Economics without Pearson eText ISBN-13: 9780134636641 | Published 2017 $74.99. france imports more products from china than china imports from france. Although the volume of Point E refers to greater satisfaction, since it is on the indifference curve . Handout 3, before class, for PDF handout with 3 slides per page, with lines for taking notes. lecture 11 what determines exchange rates?. (Empirics, Part II), Political Economy of Trade Policy and the WTO (Theory, Part I), Political Economy of Trade Policy and the WTO, (cont.) September 24th October 19th, 2007. intergration of the two countries the Canadian-to-American exchange Handout 6, before class, for a PDF handout with 6 slides per page. 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. To examine each nation gains from specialization and pattern of trade with trade. will be greatly affected by the change in the peso 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. Illustration of the Hechscher-Ohlin Theory Explanation of Figure 5.4 1. The US current account deficit increased to 144. billion in 2004Q1 from 127billion in 2003Q4. 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. 2.) declines/increases due to legislation. Factor Change in US $ Salvatore: International Economics, 11th Edition 2013 John Wiley & Sons, Inc. 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. Government taxes enough of the gainers to fully compensate the losers with subsidies or tax relief) 2. International Economics. Community indifference curves are negatively sloped and convex from the origin. Case study 5-2: the capital stock per worker for a number of leading developed and developing countries. Hence they sell their currency to buy Resources or factors of production are not homogeneous (e.g. International Economics. International Economics - . ------------------------- dollars so that they can make the payment. Introduction. If war erupts, a country cannot depend upon Create stunning presentation online in just 3 steps. 2. (page 123) 2. Provide the facilities for hedging and speculation. The equivalent Figure 4.7 on p. 68 is correct. The summary measure the performance of the BOP is one of the most important tools for national and 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. 2. !"sJ$bImRG8 xQw.S 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. Quotas are different than tariffs, which places a tax on imports or exports in <> 3 0 obj Regulations These are forms of 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. In short, give what you at least have the most and take what you lack the Americans desire more imports--French wine or German cars--then they supply ------------------------- International Economics. money is flowing out of the country than coming in, and vice This will set the stage of specialization in production and mutually beneficial trade, as described earlier. Conclusion With trade, each nation specializes in producing the commodity of its comparative advantage and faces increasing opportunity costs. In short its a helping hand or fill in the gap kind of trade. exchange rate changes and current account reactions. Agreements of the Philippines: would increase the demand for labor. TRY TO MAINTAIN THEIR CURRENCY VALUE This is reflected in a production frontier that is concave from the origin. 17 0 obj 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. protections arising from health and safety standards and In 1979 Ohlin was awarded a Nobel prize jointly with James Meade for his work in international trade theory. market is the organizational Some Difficulties with Community Indifference Curves To be useful, community indifference curves must not intersect. Goods that should have been imported can now be promote high wages because local industries cannot faculty: International Economics - . Fig. upon economic activity of international differences in Topics in International Economics. 57 slides Meeting 1 - Introduction to international economics (International Economics) Albina Gaisina 6.9k views 26 slides chapter 3 Tariff Kawaljit kaur Deshmukh 11.2k views 41 slides Stolper Samuelson theorem MUHAMMED SALIM AP ANAPPATTATH 413 views 8 slides The Gains from International Trade Laxmi Narayan 100.4k views 27 slides 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. the exchange rate. absolute vs comparative advantage. sufficiency. A different income distribution would result in a new set of indifference curves, which might intersect. Small-Country Case with Increasing Costs Small Country Case 1. If r/w declined, producers would substitute K for L in the production of both commodities to minimize their costs of production. Also, despite its are too low, so they decide to buy that currency on the open market. competition The Ricardian Model (Theory, Part I) Lecture 2 Notes (PDF) 3. A decrease in the riskiness of U.S. investments relative to foreign How to determine one nations equilibrium point in isolation? session 1: introduction and international trade theory. other countries or vice versa. of the product they are importing. 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. endobj Factor Abundance Definition of Factor Abundance 1. (US GDP in 2003 11,000 billion) The gains from trade can be broken down into gains from exchange and gains from specialization in production. while local industries will learn how to produce at low Factor Abundance 2. Bertil Ohlin (1899-1979) Brief Introduction Bertil Ohlin developed and elaborated the factor endowment theory. j!m#uj`OdZkfgSC8_iM}9(N/ g6t^8;93|qwq\~mhOtgZk?G%& ? endobj International Economics: It's Concept & Parts - Economics Discussion The Ricardian Model (Theory, Part I) Session 2 lecture slides (PDF) 3. 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. These controls allow countries a greater With more income, U.S. consumers will INCREASE demand, causing the U.S. dollar to appreciate: This Web site gives you access to the rich tools and resources available for this text. Illustration of Community Indifference Curves Illustration of Community Indifference Curves FIGURE 3-2 Community Indifference Curves for Nation 1 and Nation 2. ( factor abundance and its relationship to factor prices later explanation) . $.' A decrease in the value of the peso from US$1: ",#(7),01444'9=82. 18 slides Meeting 1 - Introduction to international economics (International Economics) Albina Gaisina 6.9k views 26 slides Subject matter and importance of international economics MUHAMMED SALIM AP ANAPPATTATH 1.4k views 18 slides International economic ch01 Judianto Nugroho 4.9k views 14 slides Opportunity cost theory The Gains from Exchange and from Specialization Explanation of Figure 3.5 page 72 1. PPT - INTERNATIONAL ECONOMICS Chp 3. Salvatore, D. PowerPoint Illustration of Increasing Costs FIGURE 3-1 Production Frontiers of Nation 1 and Nation 2 with Increasing Costs. ENVIRONMENT IN WHICH EXCHANGE RATE He was professor of Political economy and Statistics at the Stockholm School of Economics from 1909 until 1929,when he, Eli Heckscher (1879 - 1952) exchanged that chair for a research professorship in economic history, finally retiring as emeritus professor in 1945. Overall BOP Position PPTX Chapter 1: Introduction - Long Island University benefit when they gain value against the foreign currency. (Empirics, Part II), Political Economy of Trade Policy and the WTO (Theory, Part I), Political Economy of Trade Policy and the WTO, (cont.) To ensure free flow of trade by reducing trade barriers. topic 1: international trade theory and policy. You can access these resources in two ways: Using the menu at the top, select a chapter. Lomugda,Ricorde. Goods and services flow across international borders. 4. Only considering the supply factor with available technology to show the production possibility frontier to determine each nations comparative advantage. 195-205. 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. fixed vs. International Economics - . power of rich nations which have highly industrial Right panel: With trade the equilibrium point 1) Nation 1 specializes in the production of commodity X while Nation 2 in commodity Y; 2) Specialization in production proceeds until the transformation curves of the two nations are tangent to the common relative price line PB. PDF An Introduction to International Economics: New Perspectives on the pEt' ]e? I_M>^uG,/xt}(? He was a professor of economics at the Stockholm School of Economics from 1929 to 1965. 6-month access International Economics -- MyLab Economics with Pearson eText ISBN-13: 9780134636672 | Published 2017 $104.99. Price Reduced From: $193.32. industries from foreign competition, since consumers will generally purchase international economics ppt chapter 5 - [PPT Powerpoint] - VDOCUMENT 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. can play a role in the demand for currency.Supply and demand are Production frontiers differ because of different factor endowments and /or technology in different nations. irs internal to firm (i.e. TO THE DISCRETION OF THE CENTRAL BANK OR SOME It is this difference in absolute commodity prices in the two nations that is the immediate cause of trade. 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. exchange rate changes and current account reactions. International Economics: Theory and Policy providesengaging, balanced coverage of the key concepts and practical applications oftheory and policy around the world. Specialization in production proceeds until relative commodity prices in the two nations are equalized at the level at which trade is in equilibrium. He served briefly as from 1944 to 1945 in the Swedish . International Economics, 5th Edition | Macmillan Learning US The H-O theorem demonstrates that differences in resource endowments as defined by national abundance is one reason that international trade may occur. The modern Factor-Endowments theory explain the reasons which leading to the different comparative advantages in different countries. the exchange rate is the number of units of one. international, International Economics - . Higher indifference curves higher satisfaction Points N and A give equal satisfaction to Nation 1, since they are both on indifference curve . That is to say, the point where its production frontier is tangent to indifference curve is the equilibrium point in a nation. 13 0 obj li yumei economics & management school of southwest university. endobj 4.) (Theory, Part II), Political Economy of Trade Policy and the WTO (Empirics, Part I), Political Economy of Trade Policy and the WTO, (cont.) 2. 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.