Wk3_1Sept_Ch_3_EmpiricaltestRicardo

Wk3_1Sept_Ch_3_EmpiricaltestRicardo - Week 3 (Thursday,...

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Week 3 (Thursday, 9/1/2011) Chapter 3 Ricardo Model Focus on Supply Side differences that arise from differences in production technologies across countries
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Today Finish Diagrammatic Treatment of Ricardo Model Illustrate the trading equilibrium and international trading price Illustrate the impact of trade opening on production and allocation of labor Demonstrate GFT graphically Consider more than two goods in Ricardo model Empirical test of Ricardo Model: GDA MacDougall study
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Pattern of Trade & Terms of Trade U.S. RoW P c /P w = 2 W/C > ToT > P c /P w = 2/3 W/C Suppose: ToT= Pc/Pw = 1 W/C ToT is the relative price that BALANCES TRADE: Value of Home Exports = Value of Home Imports
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Change in Composition of Production Country specializes in producing product it has comparative advantage in and shuts down production of other product
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US The autarky Price Wheat Pc/Pw = 2 W/C 50 Also equals MC of C So 20 The alternative Price Pc/Pw = Production Shift W/ Trade Opening
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SHIFTING PRODUCTION Wheat 50 S’ 25 Cloth U.S. Opens to Trade So
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SHIFTING PRODUCTION Wheat 50 S’’ 25 Cloth U.S. Opens to Trade.
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This note was uploaded on 01/28/2012 for the course ECN 306 taught by Professor Croucher during the Fall '08 term at ASU.

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Wk3_1Sept_Ch_3_EmpiricaltestRicardo - Week 3 (Thursday,...

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