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Overview of Section I: International Trade Theory Section I of the text is comprised of six chapters: Chapter 2 World Trade: An Overview Chapter 3 Labor Productivity and Comparative Advantage: The Ricardian Model Chapter 4 Resources, Comparative Advantage, and Income Distribution Chapter 5 The Standard Trade Model Chapter 6 Economies of Scale, Imperfect Competition, and International Trade Chapter 7 International Factor Movements n Section I Overview Section I of the text presents the theory of international trade. The intent of this section is to explore the motives for and implications of patterns of trade between countries. The presentation proceeds by introducing successively more general models of trade, where the generality is provided by increasing the number of factors used in production, by increasing the mobility of factors of production across sectors of the economy, by introducing more general technologies applied to production, and by examining different types of market structure. Throughout Section I, policy concerns and current issues are used to emphasize the relevance of the theory of international trade for interpreting and understanding our economy. Chapter 2 gives a brief overview of world trade. In particular, it discusses what we know about the quantities and pattern of world trade today. The chapter uses the empirical relationship known as the gravity model as a framework to describe trade. This framework describes trade as a function of the size of the economies involved and their distance. It can then be used to see where countries are trading more or less than expected. The chapter also notes the growth in world trade over the previous decades and uses the previous era of globalization (pre-WWI) as context for today’s experience. Chapter 3 introduces you to international trade theory through a framework known as the Ricardian model of trade. This model addresses the issue of why two countries would want to trade with each other. This model shows how mutually-beneficial trade arises when there are two countries, each with one factor of production which can be applied toward producing each of two goods. Key concepts are introduced, such as the production possibilities frontier, comparative advantage versus absolute advantage, gains from trade, relative prices, and relative wages across countries. Chapter 4 introduces what is known as the classic Heckscher-Ohlin model of international trade. Using this framework, you can work through the effects of trade on wages, prices and output. Many important and intuitive results are derived in this chapter including: the Rybczynski Theorem, the Stolper-Samuelson Theorem, and the Factor Price Equalization Theorem. Implications of the Heckscher-Ohlin model for the
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4 Krugman/Obstfeld • International Economics: Theory and Policy, Eighth Edition pattern of trade among countries are discussed, as are the failures of empirical evidence to confirm the predictions of the theory. The chapter also introduces questions of political economy in trade. One
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This note was uploaded on 05/19/2009 for the course ECON jungminiss taught by Professor Hmhmyt during the Spring '09 term at Stanford.

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