TradeLecture11

TradeLecture11 - Chapter 5 The Standard Trade Model Slides...

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Chapter 5 The Standard Trade Model Slides based on Krugman and Obstfeld (2003) 6 th ed, and slides prepared for Pearson Education by Iordanis Petsas and Elias Dinopoulos.
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Introduction Previous trade theories have emphasized specific sources of ti d t hi h i i t i t ti l comparative advantage which give rise to international trade: Ricardian model – trade driven by differences in labor productivity. Shows comparative advantage but not income distribution effects. Specific factors model: trade driven by differences in technology and factor endowments. Shows effects of trade on income distribution but awkward to talk about trade patterns. Heckscher-Ohlin model: trade driven entirely by relative factor endowments. Shows how differing resources drive trade patterns. The standard trade model is a general model of trade that admits these models as special cases. © Ben Zissimos, Vanderbilt University
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A Standard Model of a Trading Economy The standard trade model is built on four key relationships: Relationship between Production Possibility Frontier d the relative supply curve and the relative supply curve. The relationship between relative supply and relative demand The determination of world equilibrium by world relative supply and world relative demand The effect of the terms of trade on national welfare © Ben Zissimos, Vanderbilt University
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A Standard Model of a Trading Economy Production Possibilities and Relative Supply Assumptions of the model:
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This note was uploaded on 05/05/2011 for the course CLAS 146 taught by Professor Solomon during the Spring '11 term at Vanderbilt.

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TradeLecture11 - Chapter 5 The Standard Trade Model Slides...

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