ICN Business College
International Economics Prof. Hazel Mantovani
College or university of Bologna
Email: a. [email protected] it Homepage: http://www.dse.unibo.it/mantovan
1 . Traditional Theories of International Transact: " nation based theoriesвЂќ
The Ricardian Model
The Ricardian unit says differences in productivity of labor between countries cause productive distinctions, leading to gains from trade. Differences in efficiency are usually explained by differences in technology.
Comparative Benefit and Prospect Cost
A country faces chance costs mainly because it employs solutions to produce services and goods. For example , a limited number of workers could be utilized to produce possibly roses or computers. The chance cost of generating computers is definitely the amount of roses not produced. The chance cost of making roses is definitely the amount of computers not produced. A country faces a trade off: how many computer systems or tulips should it generate with the limited resources that this has?
By using the principles of prospect cost and comparative benefits. The opportunity cost of producing a thing measures the cost of not being able to create something else.
Supply: Krugman and Obstfeld (2006), International Economics, Ch. a few
Supply: Krugman and Obstfeld (2006), International Economics, Ch. several
Relative Advantage and Opportunity Price
Suppose that in the US 10 mil roses could be produced while using same resources that could develop 100, 1000 computers. Suppose that in Ecuador 10 million roses can be produced with all the same solutions that could produce 30, 500 computers. Staff in Republic of ecuador are less successful than those in america in manufacturing computer systems. Quick questions: what is the opportunity cost pertaining to Ecuador if this decides to generate roses? Supply: Krugman and Obstfeld (2006), International Economics, Ch. 3 5
Comparison Advantage and Opportunity Cost
A country includes a comparative edge in creating a good in the event the opportunity expense of producing great is lower in the area than it truly is in other countries. A rustic with a comparative advantage in producing a great uses its resources the majority of efficiently in order to produces great compared to making other items. Source: Krugman and Obstfeld (2006), International Economics, Ch. 3 6th
Comparative Benefit and Opportunity Cost
The US has a comparison advantage in computer production: it uses it is resources more efficiently in making computers in comparison to other uses. Ecuador contains a comparative advantage in went up production: it uses its methods more efficiently in producing roses compared to different uses. Assume initially that Ecuador creates computers and the US makes roses, and that both countries want in order to computers and roses. Can both countries be made better off?
Comparative Advantage and Trade
Millions of Roses U. T. -10
1000s of Computers +100
Source: Krugman and Obstfeld (2006), Intercontinental Economics, Ch. 3
Source: Krugman and Obstfeld (2006), Worldwide Economics, Ch. 3
Comparative Advantage and Operate
In this straightforward example, we see that when countries specialize in production in which there is a comparative edge, more goods and services can be made and consumed. Initially the two countries can only consume 10 million roses and 30 1000 computers. If perhaps they made goods by which they had a comparative benefits, they would even now consume 12 million roses, but could consume 70, 000 even more computers.
Transact in the Ricardian Model
At this point consider wines and dairy products. Suppose that the domestic nation has a comparison advantage in cheese creation; its opportunity cost of producing cheese is lower than it truly is in the foreign country. When the domestic country increases dairy products production, it reduces wine beverage production lower than the foreign region does for the reason that domestic device labor requirement of cheese production is low compared to regarding wine...