Lecture2 - Econ 433 Advanced International Trade Lectures 2...

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Econ 433 Advanced International Trade Lectures 2 and 3: TRADE AND TECHNOLOGY: THE RICARDIAN MODEL
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Plan Why trade? A simple example The Ricardian model: Autarky (no-trade) equilibrium Determining the pattern of trade Solving for prices and wages in each country Export supply and import demand curves International trade equilibrium
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Discussion Why does the U.S. import goods? Does it import goods that that it could easily produce itself?
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An Easy Example: Two individuals with two alternative tasks: Frank: One day as a fisher : 2 fishes One day as a hunter : 1 hare Hugh: One day as a fisher : 1 fish One day as a hunter : 2 hares
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Production Possibilities Frontiers (PPF) in autarky Frank Hugh hares hares fishes fishes 2 1 2 1
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Preferences Indifference curves for two goods hares fish Higher utility….
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Autarkic equilibria Frank Hugh hares hares fishes fishes 2 1 2 1 Frank’s consumption Hugh’s conumption
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Autarkic equilibria Frank: Eats a lot of fish and little meat Implicitly Fish is cheap Meat is expensive Hugh: Will eat a lot of meat and little fish Implicitly Fish is expensive Meat is cheap
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What if they could trade? Even if they do not change their hunting/fishing times both can gain. Hugh can give hares to Frank in exchange of fishes. Each one will get what is hard for them to get in exchange of what is easy for them. Further gains if they specialize in production
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PPF if they work together Assignment problem: workers to tasks. Many cases. Examples: Frank only fishes, Hugh only hunts Frank only hunts, Hugh only fishes Frank and Hugh only hunt Frank only fishes, Hugh hunts and fishes Frank hunts and fishes, Hugh only fishes…
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PPF if they work together 3 3 PPF (Specializing??) Most inefficient allocation hares fish If they work together, instead of specializing
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Gains from trade are obvious since one individual is better than the other in one task.
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Lecture2 - Econ 433 Advanced International Trade Lectures 2...

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