Theory of international trade

Table des matières

I. Introduction................................................................................................................2
I. Introduction
Gains form trade?
Patterns of trade?
Effects of policies on trade?

export: a product/service sold from one country to another

import: a product/service bought from one country to another

trade balance: difference between total of import and export of goods and services

trade surplus: positive tb

trade deficit: negative tb

bilateral tb: difference between export and imports between two countries

- Trade compared with GDP

a. Political economy of tariffs

tariffs: a tax on import or exports

quotas: a quantity restriction on import or exports
export subsidies: a payment to producers that export

I. Trade and Technology: The Ricardian Model

What are the reasons for countries to trade?

Will the country best at producing a good will always export it?
How countries can compete with low wages countries?

a. Introduction

Countries trade due to:

-differences in tech
-differences in resources (labor, capital, land)
-differences in cost of offshoring
-proximity with other countries

- The Ricardian Model

Absolute advantage: when a country has a better tech 2 produce a good (lower production
cost)

Comparative advantage: when a county as no absolute advantage it must specialize in

production of the good with the lowest cost

MPL: marginal product of labor

PPF: production possibilities frontier is given, the tech and the amount of labor, every
possible combination of production of two good

Slope of PPF= MPLA*L/ MPLB*L

Indifference curve: shows a combination of two goods in various quantities that provides
equal satisfaction (utility) to an individual

Example: Two good MPLA =4 and MPLB=2 with L=25

Slope of PPF= ¼
 - Application

An American employee produce 135 000$ of textile on average and for one dollar 0.10
bushels is produced