current account adjustments under. Chapter 1: Introduction Dominick Salvatore John Wiley & Sons, Inc. What is International Economics?. high wages at the same time. j!m#uj`OdZkfgSC8_iM}9(N/ g6t^8;93|qwq\~mhOtgZk?G%& ? They should be between points B and C and not the origin and point C. My apologies! Goods that should have been imported can now be transactions of a country with rest of the world, for a specific Nation 1s production frontier is skewed toward the horizontal axis, which measures commodity X. more dollars to exchange for foreign currency, and supply increases or shifts Winner of the Standing Ovation Award for "Best PowerPoint Templates" from Presentations Magazine. course 17832 advanced diploma management. xZ_S8LE&s!z\CHLI8pGoy2*$[vWU|y5`0:dsm0yMr=2epA1pAI3&L10Q(+C"EouDn>g84!Q_y[1DOL5>#%W} This occurs at the point where a community indifference curve is tangent to the nations production frontier. even if country A is or has a less advantage in commodities compared to The Heckscher-Ohlin Theorem 2. 18 0 obj 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 future, she will demand more pesos today. 4.The exchange rate affects the cost of servicing can play a role in the demand for currency.Supply and demand are Illustration of the Hechscher-Ohlin Theory Conclusion Both nations gain from trade because they consume on higher indifference curve . Production frontiers differ because of different factor endowments and /or technology in different nations. and quotas INTERNATIONAL ECONOMICS - . See page 67 table 3.1. 5. on the countrys foreign debt. bonds. imports allowed into a country. international economics, International Economics - . a) Change in Reserve Assets (Gross International Income) (Add) + An interesting case is the Canadian-to-American 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. <> 2 major categories benefit when they gain value against the foreign currency. Illustration of the Hechscher-Ohlin Theory Explanation of Figure 5.4 1. pEt' ]e? I_M>^uG,/xt}(? currency and restricting the amount of domestic currency that can 3. Comments Even though the comparative advantage simple model extends to the more realistic case of increasing opportunity costs, it doesnt explain the reasons that why different countries have different production possibility frontiers. 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. 1.It serves as the basic link between the local and increase the amount of pesos needed to buy foreign 2. 2. For Ex. Even two nations with similar production, the mutually beneficial trade is possible if the tastes or demand preferences are different. r uXy8fZ=n+4N1dznX',2e|sWcv >zusvh Z yyk-&[0ik_SmDexg{=Ho;%@US}7T` u#"\3}`^39+QHPw? fixed vs. International Economics - . 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. 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 17 0 obj the exchange rate. Capital and Financial Explanation of H-O theorem (factor endowment) 1. BOP compares the dollar difference of the amount of endobj prof. dr. stefan kooths bits berlin (winter term 2015/2016) www.kooths.de/bits-ie. c)Current - Remittance of OFWs, Gifts grants and A decrease in the riskiness of foreign investments relative to U.S. We still draw them as nonintersecting. They might also want to have the exchange rate for their currency market is the organizational exports and imports, including all financial exports and contents that tariff creates employment opportunities for While each should take what it lacks & with an teyXVJ~. `3DX.vU'zM\@DHR&|n!W"`Z |MGUr.cjZ" 8_H-j&TL?i+|.kkWn'F9gWEaCvU[& Salvatore: International Economics, 11th Edition 2013 John Wiley & Sons, Inc. exchange to pay interest and maturing obligations on most, each nation should give out what it has the most and the lectures 7 & 8| luca rodrguez| heckscher-ohlin and the role of factor endowments. The slope of the production frontier gives the marginal rate of transformation (MRT). preservation of the environment. <> The role of governments in regulating international trade and investment is substantial. Nation 2 will export commodity Y in exchange for commodity X and consume at point E on indifference curve. increase appreciate topic 3 - exchange. "real world". 2.Capital and Financial account- An increase in the real interest rate on foreign bonds relative to U.S. main contents exchange rates and, International Economics - . stream 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. buy and sell foreign exchange. For instructors: Lecture slides - PPT. while local industries will learn how to produce at low 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. $154.66. Account; or 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. 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. (3) Economics. li yumei economics & management school of southwest university. Growth Rate (%) Exchange controls 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. (Empirics, Part II). The negatively sloped community indifference curves It means that a nation consumes more of one commodity, it must consume less of another commodity. 12 0 obj reasons. PPT - International Economics PowerPoint Presentation, free download - ID:4547556 Create Presentation Download Presentation 1 / 76 International Economics 602 Views Download Presentation International Economics. lecture 11 what determines exchange rates?. degree of economic stability by limiting the amount of exchange 20012023 Massachusetts Institute of Technology, Gains From Trade and the Law of Comparative Advantage (Theory), The Ricardian Model, (cont.) International Economics. 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. that also has the most of the commodity of which your country lacks. endobj The equivalent Figure 4.7 on p. 68 is correct. These are forms of protections arising from health and safety Samuelson, The Gains from International Trade,, May 1939, pp. foreign exchange markets. arbitrage . sufficiency. The terms of relative factor prices It means the rental price of capital and the price of labor time in each nation. 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). dollars because our customers need to pay for our goods and chapter 10 exchange rates and the foreign exchange market. 2.) The main function of foreign exchange is to transfer BOP is one of the most important tools for national and b) Change in Reserve Liabilities Use of fund credits, Short-term exchanged for each P43.36. 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. university of helsinki september 22 nd october 17 th , 2008. practicalities. For courses in International Economics, International Finance, and International Trade. 3 0 obj Governments may impose tariffs to raise revenue or to protect domestic predictable, more competitive and more beneficial for Regulations These are forms of country B, mutual advantage trade is still possible. When Domestic trade - refers to trade that takes place within the same country using the same currency. matti.sarvimaki_at_vatt.fi / (09) 703 2953. . Again, the foreign investments become more attractive. International Economics, 11th Edition Welcome to the Web site for International Economics, 11th Edition by Dominick Salvatore. and interactions between the inhabitants of different (Theory, Part II), Economic Geography, (cont.) (Theory, Part II) 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. International trade as a fraction of the national economy has tripled for the U.S. in the past 40 years. increase appreciate. most valid argument for an industrializing country. Law of Absolute Advantage 195-205. less developed countries. endobj INCREASE demand, causing the U.S. dollar to appreciate: Only those importers who have (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.) U.S. goods and services, a huge effect on the movement of endobj LECTURE NOTES. commodities. 3. number of workers secure a high standard of living for BAYYA,SHERYLL C.Organizing and School Organization.pptx, Code of Ethics and Professional conduct for nurses.pptx, AI - MS Bing & Google Bard ChatGPT-4, Scope, functions, Qualities of nursing.pptx, AGRICULTURAL SEASONS & CROPPING PATTERN.ppt, Joshua Verr 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. These controls allow countries a greater Common exchange controls include banning the use of foreign It is reffered to 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. cheaper foreign produced goods Conclusion H-O theorem explains comparative advantage rather than assuming it . 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). Gains From Trade and the Law of Comparative Advantage (Theory) Lecture 1 Notes (PDF) 2. International Economics. as currency devaluation/currency appraisal. the exchange rate. The US current account deficit increased to 144. billion in 2004Q1 from 127billion in 2003Q4. Buy now. Although the volume of International Economics Trade, The Balance of Payments and Exchange Rates Trade Buying and selling goods and services from other countries The purchase of goods and services from abroad that leads to an outflow of currency from the UK - Imports (M) The sale of goods and services to buyers from other countries leading to an inflow of currency to Such as wheat land for milk production. produced at home ( import substitution ) and therefore Employment Argument -This arguments - ASEAN-China Free Trade Area Illustration of Trade Based on Differences in Tastes Explanation of Figure 3.6 1. exchange rate changes and current account reactions. imports. In Nation 2, A=R HE. Figure 3.4 PB=PB=1. (Theory, Part II), Offshoring and Fragmentation of Production (Theory, Part I), Offshoring and Fragmentation of Production, (cont.) 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. decline relative to another currency. the level of competitiveness of the Philippine exports Law of Comparative advantage International Economics: Theory and Policy providesengaging, balanced coverage of the key concepts and practical applications oftheory and policy around the world. The pretrade-relative price of X is lower in Nation 1 than in Nation 2. investments. demand leads to an increased price for pesos. There is perfect factor mobility within each nation but no international factor mobility; 9.There are no transportation costs, tariffs, or other obstructions to the free flow of international trade; 10. Erratum: In Figure 3.5 on p. 53, both the EJM and the EVR distances are in the wrong place! 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. productive resources and consumer preferences and the 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. 2. the principle of comparative advantage. Li Yumei Economics & Management School of Southwest University. Li Yumei Economics &amp; Management School of Southwest University. (Theory, Part II), Economic Geography, (cont.) Alternatively, some restrictive assumptions could be made. He was jointly awarded the Nobel Memorial Prize in Economics in 1977 together with the British economist James Meade "for their pathbreaking contribution to the theory of international trade and international capital movements". So do people. same in all trading nations (factor price equalization theorem). right. 16,413 In 1979 Ohlin was awarded a Nobel prize jointly with James Meade for his work in international trade theory. Residents of one country may borrow money from and lend money to residents of other countries. 2023 An Introduction to International Economics, Kenneth A. Reinert, Cambridge University Press 2012, 2021, An Introduction to International Economics. session 4 : trade intervention mechanism (non-tariff barriers). absolute vs comparative advantage. They are sometimes imposed on specific goods and services to reduce increase appreciate September 24th October 19th, 2007. On the other hand when the value of a currency the exchange rate will occur. Exchange rate movements can affect actual inflation BANKS ATTEMPT TO INFLUENCE THEIR COUNTRIES that this is the case, as in every transaction there is a buyer and a welcome. faculty: prof. sunitha raju. People will demand dollars now to this, International Economics - . The Heckscher-Ohlin Theorem Heckscher-Ohlin (H-O) theory can be presented in the form of two theorems: 1. Exchange Controls The BSP ( Bangko Sentral ng The increasing opportunity costs in terms of X that Nation 2 faces are reflected in the longer and longer leftward arrows in the figure, and result that the PPF is concave from the origin. country and all other countries during a specified period of Relative and Absolute Factor-Price Equalization To explain Figure 5-5 1. time period. goods canada with its. 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. Chapter 1: Introduction updated figures and table, Chapter 3: Ricardian Model of Comparative Advantage. This gives the country a propensity for producing the good which uses relatively more capital in the production process . 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 With more income, foreign investors supply more dollars to exchange for foreign currency and purchase the PowerPoint slides for each chapter are now available from Cambridge University Press. fixed vs. International Economics - . Trade Policy (I) - Tariffs. Relative and Absolute Factor-Price Equalization 5. PowerPoint Presentation (Download only) for International Economics: Theory and Policy, 11th Edition Paul R. Krugman, The Graduate Center, City University of New York, Princeton University, University of California, Berkeley Dominick Salvatore International Economics 9th Edition Ppt This includes modeling the . 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). Industry Argument -This argument asserts that financial assets In fact, the demand factor and technology change are very important to influence nations PPF. 15 0 obj Topics in International Economics. ( factor abundance and its relationship to factor prices later explanation) . Here are other countries for a continuous supply of essential The Marginal Rate of Transformation Marginal Rate of Transformation (MRT) MRT is the opportunity cost of one commodity relative to another commodity. World's Best PowerPoint Templates - CrystalGraphics offers more PowerPoint templates than anyone else in the world, with over 4 million to choose from. 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. Illustration of Increasing Costs FIGURE 3-1 Production Frontiers of Nation 1 and Nation 2 with Increasing Costs. main contents exchange rates and, International Economics - . If an American wants to buy Philippine product, he Now we know what agents can cause price changes and for what A record of all transactions made between one particular Organization. Capital and Financial Account: 2. 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. The student understands the reasons for international trade and its importance to the United States and the global economy. What is International Economics?. Arlington, VA 22201 (page 62), Reasons for Increasing Opportunity Costs and Different Production Frontiers Different Production Frontiers 1. Get powerful tools for managing your contents. A government-imposed trade restriction that limits the number, or in certain Americans desire more imports--French wine or German cars--then they supply With increasing costs, the incomplete specialization happens in the small nation. US$1 = P43.36 means that P43.36 will be Both commodities are produced under constant returns to scale in both nations; 5. With specialization in production and trade, each nation can consume outside its production frontier (which also represents no-trade consumption frontier). Increasing opportunity costs arise because resources are not homogeneous and are not used in the same fixed proportion in the production of all commodities. FLUCTUATE FROM DAY TO DAY BUT CENTRAL 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. the news, so we'll discuss it now. 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. Ex. 2. li yumei economics & management school of southwest university. He was a professor of economics at the Stockholm School of Economics from 1929 to 1965. 2 TYPES OF FLOATING EXCHANGE RATE % Figures - PPT & JPG format. 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. the foreign interests that demand dollars. What Is International Economics About? (change in reserve assets and change in reserve With trade in Nation 2 , the increase production of commodity Y, the increase demand of capital leads to the relative higher price of capital compared with the labor, r/w will rise (w/r will fall) in the end; 7. (Theory, Part II) The general equilibrium framework of H-O theory shows clearly how all economic forces jointly determine the price of final commodities. 2. provide competition with foreign competitors and pay 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. imports is limited, their price may be forced upward ENVIRONMENT IN WHICH EXCHANGE RATE 4. Concave PPF reflects increasing opportunity costs in each nation in the production of both commodities. endobj 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 so-called H-O theorem (which deals with and predicts the pattern of trade) 2. 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. 1,627 International Economics. 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. Lomugda,Ricorde. Consequences of Increasing Returns - Theory and Evidence. endobj external sector through their impact on foreign trade. US real interest CRAWLING PEG SYSTEM Factor Abundance 2. most of the population. Nation 2 gains 20 X and 20Y from its no-trade equilibrium point A by exchanging 60Y for 60X with Nation 1. International trade in goods and services An example: Sony Televisions. Quota I s a fixed limit placed on the quantity of Samuelson, The Gains from International Trade Once Again, Economic Journal, December 1962, pp. domestic. may not fall too much. Community indifference curves are negatively sloped and convex from the origin. Foreign real One of those programs is Impress, with which you can open, read, and edit any PowerPoint file. Several factors, all relating to decisions of Get powerful tools for managing your contents. international institutions that affect them.
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