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The Marginal Rate of Substitution Marginal Rate of Substitution (MRS) 1. 6-month access International Economics -- MyLab Economics without Pearson eText ISBN-13: 9780134636641 | Published 2017 $74.99. Higher indifference curves higher satisfaction Points N and A give equal satisfaction to Nation 1, since they are both on indifference curve . foreign countries to purchase U.S. goods and services or U.S. investments. current account adjustments under. International trade in goods and services An example: Sony Televisions Standard of Living The International Economy generates Interdependence Economic growth in the United States spurs increased demand for imports Increased import demand by the United States generates economic growth in other countries Subjects in International Economics 9g%>};;h)y \Ye;'''zAain)U E4F9@h]IV*s'Z``&CJQq]A??cL,|,Z8~z\nn?>=hn8.WV$/'J6"}(>fC}j1.bK\}Az`^{kPhz*GZMd Case Study 3-1 Comparative advantage of the Unites States, the European Union and Japan Revealed Comparative Advantage () It refers to the excess in the percentage of total exports over the percentage of total imports in each major commodity group for each country or region. An expected depreciation of the dollar. week 1 12 th february 2013 introduction. -2010+1320= -690 / 1320 = -52.27 International Economics. But this argument lost its stream when it was Capital and Financial Acc. thereby reducing the import spending of the country. Compared to the U.S., other countries are even more tied to international trade. 2. time. ENVIRONMENT IN WHICH EXCHANGE RATE Employment Argument -This arguments Foreign issued Securities, Monetary Gold, Foreign Exchange High wages and a large Factor Abundance 2. For instructors: Lecture slides - PPT. CURRENCIES declines/increases due to legislation. `3DX.vU'zM\@DHR&|n!W"`Z |MGUr.cjZ" 8_H-j&TL?i+|.kkWn'F9gWEaCvU[& Exchange rate movements can affect actual inflation Meaning of the Assumptions Assumption 3 of the labor intensive commodity X and the capital intensive commodity Y: It means that commodity X requires relatively more of labor to produce than commodity Y in both nations. 3.5 The Basis for and the Gains from Trade with Increasing Costs Illustrations of the Basis for and the Gains from Trade with Increasing Costs Equilibrium-Relative Commodity Prices with Trade Incomplete Specialization Small-Country Case with Increasing Costs The Gains from Exchange and from Specialization Conclusion. 6 0 obj Agreements of the Philippines: The increasing opportunity costs in terms of X that Nation 2 faces are reflected in the longer and longer leftward arrows in the figure, and result that the PPF is concave from the origin. Li Yumei Economics &amp; Management School of Southwest University. The effects of trade and migration are part of international economics. PowerPoint slides for each chapter are now available from Cambridge University Press. bonds. We can use our knowledge to analyze what happens in the Left panel: it shows the production frontier of Nation 1 and 2 1) Nation 1s production frontier is skewed along the X-axis; 2) Nation 2s production frontier is skewed along the Y-axis; 3) Indifference curve is tangent to Nation 1s production frontier at point A while point A in Nation 2s (due to the equal tastes); 4) A represents Nation 1s equilibrium points of production and consumption while A represents Nation 2s equilibrium points of production and consumption in the absence of trade; 5) Since the equilibrium-relative commodity prices of PAPA, Nation has a comparative advantage in commodity X while Nation 2 in Commodity Y. This is the international institutions that affect them. Nation 2s slope of the rays (K/L) in the production of commodity X and commodity Y; The same meaning in Nation 2, K/L in Y=4 while K/L in X= 1. Exchange Controls The BSP ( Bangko Sentral ng some factors that would INCREASE supply, causing the U.S. dollar to depreciate: Illustration of Increasing Costs Increasing Opportunity Costs Increasing opportunity costs mean that the nation must give up more and more of one commodity to release enough resources to produce each additional unit of another commodity. <> And to be useful, they must not cross. He was professor of Political economy and Statistics at the Stockholm School of Economics from 1909 until 1929,when he, Eli Heckscher (1879 - 1952) exchanged that chair for a research professorship in economic history, finally retiring as emeritus professor in 1945. $.' Constant Opportunity Costs: It means that the nation must give up the fixed amount of one commodity to release enough resources to produce each additional unit of another commodity. Samuelson, The Gains from International Trade Once Again, Economic Journal, December 1962, pp. ------------------------- Illustration of Community Indifference Curves Illustration of Community Indifference Curves FIGURE 3-2 Community Indifference Curves for Nation 1 and Nation 2. li yumei economics & management school of southwest university. CURRENCY LOW TO INDUCE ITS EXPORTS. (Theory, Part II), The Heckscher-Ohlin Model (Empirics, Part I), The Heckscher-Ohlin Model, (cont.) The price of factors of production, together with technology, determines the price of final commodities. imports decrease, exports will decrease also, and PowerPoint Slides for International Economics: Theory and Policy, Global Edition, 11/E. reasons. Here are some factors that would This is not always the case. Community indifference curves are negatively sloped and convex from the origin. can play a role in the demand for currency.Supply and demand are The Factor-Price Equalization Theorem Explanation of H-O-S Theorem 1. 6-month access International Economics -- MyLab Economics with Pearson eText ISBN-13: 9780134636672 | Published 2017 $104.99. LECTURE SLIDES. preservation of the environment. exports and imports, including all financial exports and is important for several reason: This will set the stage of specialization in production and mutually beneficial trade, as described earlier. session, International Economics - . He was jointly awarded the Nobel Memorial Prize in Economics in 1977 together with the British economist James Meade "for their pathbreaking contribution to the theory of international trade and international capital movements". Such as wheat land for milk production. Li Yumei Economics & Management School of Southwest University. faculty: International Economics - . <>/F 4/A<>/StructParent 1>> 1. Here we see 4. International Economics. Testbanks. the exchange rate is the number of units of one. An increase in foreign GDP and income. 3. rate volatility due to currency inflows/outflows. Winner of the Standing Ovation Award for "Best PowerPoint Templates" from Presentations Magazine. Net Unclassified Items -2,010 -1,320 -53.4 Reason: Nation 1is a L-abundant nation and commodity X is L- intensive . What Is International Economics About? 2. Decreasing Opportunity Costs: ? currency ) to importers. Salvatore: International Economics, 11th Edition 2013 John Wiley & Sons, Inc. main contents exchange rates and, International Economics - . Analytically, international markets allow governments to discriminate against a subgroup of companies. 2. Conclusion In the absence of trade, a nation is in equilibrium when it reaches the highest indifference curve possible with its production frontier. Illustration of Equilibrium in Isolation Introduction In section 3.2 the production or supply conditions (production possibility frontier) are discussed in a nation; In section 3.3 the tastes or demand preference conditions (community indifference curves) are discussed in a nation. j!m#uj`OdZkfgSC8_iM}9(N/ g6t^8;93|qwq\~mhOtgZk?G%& ? - ASEAN-China Free Trade Area Handout 3, before class, for PDF handout with 3 slides per page, with lines for taking notes. PowerPoint slides for each chapter are now available from Cambridge University Press. (Empirics, Part II), Political Economy of Trade Policy and the WTO (Theory, Part I), Political Economy of Trade Policy and the WTO, (cont.) endobj a peso depreciation Organization. <> The forces of supply (as given by the nations PPF) and the forces of demand (as summarized by the nations indifference curves or maps) together determine the equilibrium-relative commodity prices in each nation in autarky. (Empirics, Part II). Here are degree of economic stability by limiting the amount of exchange In other words, the relative capital price (r/w) is lower in Nation 2 than in Nation1. industries from foreign competition, since consumers will generally purchase Erratum: In Figure 3.5 on p. 53, both the EJM and the EVR distances are in the wrong place! foreign bonds. The so-called H-O theorem (which deals with and predicts the pattern of trade) 2. Oia9~GMSsMRI>y{}k= }VUT} V &k|g/&L__3we=s>PWe.T2R>YP{T#'&" ~hl Z@hZ9 jW!EZDJ5. EXCHANGE RATE BY BUYING AND SELLING The factor-price equalization theorem (which deals with the effect of international trade on factor prices) In fact, the H-O model has four major components: Heckscher-Ohlin Trade Theorem ; Stolper-Samuelson Theorem; Rybczynski Theorem; Factor Price Equalization Theorem. The H-O theorem demonstrates that differences in resource endowments as defined by national abundance is one reason that international trade may occur. For Ex. (Empirics, Part II), Trade Theory with Firm-Level Heterogeneity (Theory, Part I), Trade Theory with Firm-Level Heterogeneity, (cont.) Bertil Ohlin (1899-1979) Bertil Gotthard Ohlin (pronounced [brtil ulin]) (23 April1899 3 August1979) was a Swedisheconomist and politician. expected US price People will demand dollars now to Absolute factor-price equalization It means that free international trade also equalizes the real wages for the same type of labor in the two nations and the real rate of interest for the same type of capital in the two nations. 2) Speculators Philippines external transactions is called the overall BOP new trade theory. - ASEAN-Australia-New Zealand Free Trade Area, more of your commodity to other follow trading countries, but, take little (cont.) Lecture 17 slides (PDF - 1.1MB) 18. 2 TYPES OF FIXED EXCHANGE RATE (Empirics, Part II), Trade Theory with Firm-Level Heterogeneity (Empirics, Part I), Trade Theory with Firm-Level Heterogeneity, (cont.) ensure self-sufficiency in case of conflicts. (Tariff and The Assumptions 1. faculty: prof. sunitha raju. MRS of one commodity for another commodity in consumption refers to the amount of another commodity that a nation could give up for one extra unit of one commodity and still remain on the same indifference curve. 2 TYPES OF FLOATING EXCHANGE RATE An increase in the preference of foreign countries for U.S. goods. 2. Overall BOP <> The demand for factors of production, together with the supply of the factors, determines the price of factors of production under perfect competition. endobj Quota Richardson and C.Zhang, Revealing Comparative Advantage, NBER Working Paper No. are too low, so they decide to buy that currency on the open market. endobj commodities. power of rich nations which have highly industrial Hence they sell their currency to buy international economics, International Economics - . arbitrage . endobj Provide the facilities for hedging and speculation. BANKS ATTEMPT TO INFLUENCE THEIR COUNTRIES <> Commodity Y is K-intensive commodity while commodity X is L- intensive commodity in both nations; Reason: K/L ratio is higher for commodity Y than commodity X, on the contrary the L/K ratio is higher for commodity X than commodity Y; 2. 3. topic 3 - exchange. position. endstream The demand for commodities determines the derived demand for the factors required to produce them. dollars so that they can make the payment. The effects of this is also part of international economics. > n0 `Z]C& G]PNG services in dollars and, therefore they will have to convert their 2. The Heckscher-Ohlin Theorem H-O theorem (page 125) A nation will export the commodity whose production requires the intensive use of the nations relatively abundant and cheap factor and import the commodity whose production requires the intensive use of the nations relatively scarce and expensive factor.

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