Chapter 5 The Standard Trade Mode
Chapter 5 ▪ The Standard Trade Model
Chapter Organization Introduction A Standard Model of a Trading Economy International Transfers of Income: Shifting the RD Curve Tariffs and Export Subsidies: Simultaneous Shifts in RS and RD Summary Appendix: Representing International Equilibrium ith Offer Curves Copyright C 2003 Pearson Education, Inc Slide 5-2
Copyright © 2003 Pearson Education, Inc. Slide 5-2 Chapter Organization ▪ Introduction ▪ A Standard Model of a Trading Economy ▪ International Transfers of Income: Shifting the RD Curve ▪ Tariffs and Export Subsidies: Simultaneous Shifts in RS and RD ▪ Summary ▪ Appendix: Representing International Equilibrium with Offer Curves
Introduction Previous trade theories have emphasized specific sources of comparative advantage which give rise to international trade Differences in labor productivity (Ricardian model) Differences in resources(specific factors model and Heckscher-Ohlin model) Copyright C 2003 Pearson Education, Inc Slide 5-3
Copyright © 2003 Pearson Education, Inc. Slide 5-3 Introduction ▪ Previous trade theories have emphasized specific sources of comparative advantage which give rise to international trade: • Differences in labor productivity (Ricardian model) • Differences in resources (specific factors model and Heckscher-Ohlin model)
Those models share s number of features The productive capacity of an economy can be summarized by its production possibility frontier Production possibilities determine a country's relative supply schedule World equilibrium is determined by world relative demand and a world relative supply schedule that lies between the national relative supply schedules a The standard trade model is a general model of trade that admits these models as special cases Copyright C 2003 Pearson Education, Inc Slide 5-4
Copyright © 2003 Pearson Education, Inc. Slide 5-4 ▪ Those models share s number of features: • The productive capacity of an economy can be summarized by its production possibility frontier • Production possibilities determine a country’s relative supply schedule • World equilibrium is determined by world relative demand and a world relative supply schedule that lies between the national relative supply schedules. ▪ The standard trade model is a general model of trade that admits these models as special cases
a Standard model of a Trading Economy The standard trade model is built on four key relationships Production possibility frontier and the relative suppl curve Relative prices and relative demand World relative supply and world relative demand Terms of trade and national welfare Copyright C 2003 Pearson Education, Inc Slide 5-5
Copyright © 2003 Pearson Education, Inc. Slide 5-5 A Standard Model of a Trading Economy ▪ The standard trade model is built on four key relationships: • Production possibility frontier and the relative supply curve • Relative prices and relative demand • World relative supply and world relative demand • Terms of trade and national welfare