Week 2 - Week 2 Neoclassical Trade Theory Neoclassical is...

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Week 2: Neoclassical Trade Theory Neoclassical is defined by The Merriam-Webster Dictionary as "relating to, or constituting a revival or adaptation of the classical" and is typically used when talking about a new approach to art, literature, or building architecture. The term can also refer to business or financial practices, however. As the world grows in terms of technology and ease of interaction, the old models of doing business needed to adapt to a changing financial market. This week you will be introduced to the neoclassical model of trade. Developed in the late 1800s, this model extended the original parameters of international economics by making use of marginal analysis and optimization problems to better address the international climate. You will also learn how the neoclassical method brought the demand side of the market explicitly into the analysis, an important dimension not included in the original Classical analysis. Consider how the increasing demand for oil has impacted gasoline prices. Do you think the price of gasoline is tied more closely to production costs or to market demand? Learning Outcomes By the end of this week, you will be able to: Analyze the different extensions of the Classical Ricardian model in order to demonstrate more fully the factors that influence international trade beyond the simple two-country, two-commodity labor requirement barter model. Evaluate the gains from trade using the more modern neoclassical theory of trade. Analyze the underlying bases for trade, paying particular attention to factor endowments, factor intensities, and the Heckscher-Ohlin theorem. Reading Course Text: International Economics Chapter 5, "Introduction to the Neoclassical Theory: Tools to be Employed" This chapter describes how the understanding of international economics has continued to evolve. (Economists call the
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Week 2 - Week 2 Neoclassical Trade Theory Neoclassical is...

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