December 9, 2010 Notes

Tuesday, December 14, 2010

1:35 AM

• The Traditional Theories of Trade:

○ Arguments:
1) Trade would eventually lead to an equalization of product prices and factor prices across
countries.
2) International markets were regarded as approximating perfectly competitive conditions
which can then overcome any advantages of local monopolies.
3) International supply is expanded by technological and productivity developments.
4) International demand is shifted by autonomous changes in tastes and preferences and
international transfers of income.
□ International transfers of income = implies that some countries/segments of countries
grow faster than the other countries/segments
• Autonomous changes
○ Happens without any form of government intervention
○ Challenge to firms to keep on reinventing
 Showcases creativity of firms
• Comparative advantage
• Trade becomes a spur for greater productivity.
○ Trade → vent for surplus
• External economies of scale
○ Cluster → can attain higher levels of efficiency and production
• UK: largest per capita consumers of tea
• Perfect competition:
○ One homogeneous good
○ Many buyers and sellers
○ Perfect information
○ Resource mobility
• Monopoly = someone is earning very much at the expense of others
• Countries are being encouraged to engage in international trade to lessen the probability of monopolies
forming in the country.
• Monopolistic competition
○ Many buyers and sellers
○ Perfect information
○ Resource mobility
○ Good is no longer homogeneous
 Made for a certain market segment/niche
 Differentiated by quality

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