6IntTradeTheory-Critics.pptx - -Labour Theory of...

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-Labour Theory of Value -International Trade Theory and critics -Karl Marx on the Labour Theory of Value -Utility Theory
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Classical Liberalism: The labour theory of value : (internal share of wealth) o The value of a good or service is dependent upon the labor used in its production o The labor theory of value suggests that goods which take the same amount of time to produce should cost the same o All value is labour. What is the origin of capital? Passed labour. Embodied labour- labour in the past that transformed into capital. Capitalists do not consume all they produce and keep the surplus for future. o Let us assume: In a small village, we make hunting and gathering, an average hunter hunts a deer in 4 hours, the same hunter hunts a rabbit in 15 minutes, what will be the comparative price for the deer? 1 deer: 16 rabbits o The price is the proportion of two goods to each other. Not a monetary figure. Explain the price to justify the distribution of outcomes in the society.
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Classical Liberalism: International Trade Theory External share of wealth based on absolute advantages How to distribute output in global level? Nations make trade- exchange of surplus values. Should we have a closed economy? It is not beneficial for humanity. When nations are closed- no engagement in international trade, the global output would be less We see assumptions always in international trade theories: 2-2-1 : two nations make trade, two items they produce, one factor of production is used which is labour..
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Examples: Turkey and the US: Both produces wheat and cars and use two units of labour in production. (Unit of labour is defined in both, how many workers you have) One unit of labour makes cars, another one makes wheat in both At the end, Turkey produces 10 cars and 1000 tons of wheat, whereas the US produces 500 tons of wheat and 40 cars. The global output is 1500 wheat and 50 cars. o In the first situation: Turkey= 10 cars and 1000 tons of wheat (absolute advantage in wheat ) The U.S= 40 cars and 500 tons of wheat (absolute advantage in cars ) Global output= 50 cars and 1500 wheat
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Classical Liberals: ‘‘If there are absolute advantages the global division of labour would benefit both parties’’ Turkey should produce wheat and the U.S should produce car Take the unit of labour from car to wheat in Turkey, no cars anymore in
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