class8_GE-production_

class8_GE-production_ - Econ 51, Winter 2011 Class #8 Due...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
Econ 51, Winter 2011 Class #8 •Due to family emergency, Anqi cannot hold TA sections this Friday (January 28th). •If you are in one of Anqi's sections, then •(1) If you are on the 9-10 section, then please come to the same room as usual, and Pete will hold a section, •(2) If you are on the 10-11 section, then please go to one of the two sections held at the same time, i.e., Pete's or Sanaa’s •I apologize for inconvenience.And thanks for your cooperation •PS 2 due this Friday •PS 3 posted today • Today: applications of GE to the consequences of free trade. 1 Monday, February 7, 2011
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
General Equilibrium with Production • Last time we talked about firms, showed what’s efficient, and how to find an equilibrium. Today we’ll do one (long) application, to the consequences of free trade agreements. The application will also allow us to go through more examples. 2 Monday, February 7, 2011
Background image of page 2
International Trade 3 Monday, February 7, 2011
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Application: international trade GE w/ prod. Do we want free trade agreements? Look at two countries. Compute autarky equilibria (i.e. when the countries do not trade). Then assume that countries can trade freely in all goods and compute the new equilibrium. Compare the utilities for these two cases. 4 Monday, February 7, 2011
Background image of page 4
David Ricardo’s legacy GE w/ prod. Until the mid 1800’s the Corn Laws in England had made it impossible to import wheat (and some other agricultural products) from abroad. The English land-owners (aristocracy) obviously liked these laws: however, the rising bourgeoisie despised them since they seemed designed to help the ruling class. Labor was confused in the middle: it seemed that allowing agricultural imports from abroad would lead to falling wages and workers would be worse off (only the bourgeoisie would gain). Ricardo came along and described a simple model in which there are only workers. He showed convincingly that the workers would actually gain from abolishing the Corn Laws. 5 Monday, February 7, 2011
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Comparative advantage GE w/ prod. Continental Europe was less productive in producing food and in producing clothes. Workers in England were concerned that free trade would lead to a drop in their real wage: cheap European labor would produce clothes and the English would lose their jobs. Instead, Ricardo argued that Europe had a comparative advantage in agriculture: free trade would make European workers move into agriculture and Europeans sell cheap wheat to England. In exchange, they demand more clothes from England. 6 Monday, February 7, 2011
Background image of page 6
Comparative advantage (cont.) GE w/ prod. Comparative advantage, not absolute advantage, is what matters. Continental Europe might be less productive in everything in absolute terms, but it is comparatively more productive in agriculture: England has comparative advantage in industrial production. The
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 33

class8_GE-production_ - Econ 51, Winter 2011 Class #8 Due...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online