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lec06-eco101-10

lec06-eco101-10 - InternationalTrade Lecture6 c...

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Unformatted text preview: InternationalTrade Lecture6 c Marc-AndreasMuendler UniversityofCalifornia,SanDiego October12,2010 6.AnOverviewofClassicTradeTheory Econ101, c M.Muendler ThisLecture • Firstderivesrelativesupplyandrelativedemandintheworldmarket toworktowardsWorldTradeEquilibrium (takingHeckscher-Ohlinasbenchmarkmodel) • ClosestheclassictrademodelswithWorldTradeEquilibrium (startingwithHeckscher-Ohlin,thenSpecificFactors,thenRicardo) • RevisitsthegainsfromtradeinWorldTradeEquilibrium (startingwithRicardo,thenSpecificFactors,thenHeckscher-Ohlin) 6.AnOverviewofClassicTradeTheory Econ101, c M.Muendler TermsofTrade • TheTermsofTrade(ToT) ToT Home = P Homeexports /P Homeimports • Deepertradeintegrationtendstoimproveacountry’sToT. Reason .Therelativeworldpricefortheexportsgoodstendstorise becausetherestoftheworldhashigheropportunitycostsinthe good. • WelfaretypicallyimproveswithrisingToT. WelfaretypicallyworsenswithfallingToT. 6.AnOverviewofClassicTradeTheory Econ101, c M.Muendler Heckscher-Ohlin:RelativeSupplyofComputers • Underincompletespecialization,relativecomputersupply Q C /Q F increaseswithrelativeprice P C /P F • Proof . (forCobb-Douglasproductionfunctionshere) Production: Q C = Q C ( T C ,L C )= A · ( T C ) α C ( L C ) 1- α C , and Q F = Q F ( T F ,L F )= A · ( T F ) α F ( L F ) 1- α F . So, Q C Q F = L C L F ( T C /L C ) α C ( T F /L F ) α F = L C L F 1- α F 1- α C P F P C = T C T F α F α C P F P C , since ( T C /L C ) α C ( T F /L F ) α F = α C 1- α C w r ¶ α C . α F 1- α F w r ¶ α F = 1- α F 1- α C P F P C byfactormarketclearing(seeproductpricesandinputchoicederivations).cont’d 6.AnOverviewofClassicTradeTheory Econ101, c M.Muendler Heckscher-Ohlin:RelativeSupplyofComputers • Proof(cont’d) . Q C Q F = T C T F α...
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lec06-eco101-10 - InternationalTrade Lecture6 c...

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