lec06-eco101-11

lec06-eco101-11 - InternationalTrade Lecture6 c...

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Unformatted text preview: InternationalTrade Lecture6 c Marc-AndreasMuendler UniversityofCalifornia,SanDiego October11,2011 6.WorldTradeEquilibriuminClassicTradeTheory Econ101, c M.Muendler ThisLecture Firstderivesrelativesupplyandrelativedemandintheworldmarket toworktowardsWorldTradeEquilibrium (takingHeckscher-Ohlinasbenchmarkmodel) ClosestheclassictrademodelswithWorldTradeEquilibrium (startingwithHeckscher-Ohlin,thenSpecificFactors,thenRicardo) RevisitsthegainsfromtradeinWorldTradeEquilibrium (startingwithRicardo,thenSpecificFactors,thenHeckscher-Ohlin) 6.WorldTradeEquilibriuminClassicTradeTheory Econ101, c M.Muendler TermsofTrade TheTermsofTrade(ToT) ToT Home = P Homeexports /P Homeimports DeepertradeintegrationtendstoimproveacountrysToT. Reason .Therelativeworldpricefortheexportsgoodstendstorise becausetherestoftheworldhashigheropportunitycostsinthe good. WelfaretypicallyimproveswithrisingToT. WelfaretypicallyworsenswithfallingToT. 6.WorldTradeEquilibriuminClassicTradeTheory 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 ) C ( L C ) 1- C , and Q F = Q F ( T F ,L F )= A ( T F ) F ( L F ) 1- F . So, Q C Q F = L C L F ( T C /L C ) C ( T F /L F ) F = L C L F 1- F 1- C P F P C = T C T F F C P F P C , since ( T C /L C ) C ( T F /L F ) F = ( C 1- C w r ) C / ( F 1- F w r ) F = 1- F 1- C P F P C byfactormarketclearing(seeproductpricesandinputchoicederivations).contd 6.WorldTradeEquilibriuminClassicTradeTheory Econ101, c M.Muendler Heckscher-Ohlin:RelativeSupplyofComputers Proof(contd) . Q C Q F = T C T F F...
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lec06-eco101-11 - InternationalTrade Lecture6 c...

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