Comparative Advantage theory of David Ricardo(2) AA theory is a special case of Ca theory Country a Country B GoodⅩ 2 hours per piece 3 hours per piece Good y 4 hours per piece 2 hours per piece 2/3<4/2, country a has Ca in good X and country B has Ca in Y. The patterns of trade are the same as those if judging from AA theory The exception of CA theory Country a Country B Good x 2 hours per piece 3 hours per piece Goody 4 hours per piece 6 hours per piece 2/4=4/6. there are no ca for the 2 countries
Comparative Advantage theory of David Ricardo (2) • AA theory is a special case of CA theory . Country A Country B Good X 2 hours per piece 3 hours per piece Good Y 4 hours per piece 2 hours per piece 2/3<4/2, country A has CA in good X and country B has CA in Y. The patterns of trade are the same as those if judging from AA theory. • The exception of CA theory Country A Country B Good X 2 hours per piece 3 hours per piece Good Y 4 hours per piece 6 hours per piece 2/4=4/6, there are no CA for the 2 countries
Comparative Advantage theory of david Ricardo 3) Graphical representation (a) Country As close and open economy equilibrium (b) Country B's close and open economy equilibrium P b bx b
Comparative Advantage theory of David Ricardo (3) • Graphical representation • • （a）Country A’s close and open economy equilibrium • （b）Country B’s close and open economy equilibrium • Y X 0 B Y X 0 Y X A a a P = E A a I a I H PW B E A b I b I Y X B b b P = PW H
Ch 3 Neoclassical theory of trade Production possibility curve and opportunity cost Social indifference curve Standard model of trade theory Offer curve and the terms of trade
Ch.3 Neoclassical theory of trade • Production possibility curve and opportunity cost • Social indifference curve • Standard model of trade theory • Offer curve and the terms of trade
Production possibility curve and opportunity cost(1) Production possibility curve or product transformation curve represents the maximum amount of one commodity obtainable for any given amount of the other. This requires that the given fixed amounts of productive factors are optimally allocated between the two commodities in accordance with certain marginal productivity conditions which are easily found by using the box diagram Marginal rate of transformation (mrt): the absolute value of the slope of a production possibility curve at a point it represents the amount of one commodity that a nation must give up to produce each additional unit of another commodity. It is another name for the opportunity cost Opportunity cost: the opportunity cost of a commodity is the amount of a second commodity that must be given up to release just enough resources to produce one more unit of the first commodity under the condition of full employment of resources, and resources are scarce various kinds of production possibility curves: constant opportunity cost; increasing opportunity cost; decreasing opportunity cost
Production possibility curve and opportunity cost(1) • Production possibility curve or product transformation curve represents the maximum amount of one commodity obtainable for any given amount of the other. This requires that the given fixed amounts of productive factors are optimally allocated between the two commodities in accordance with certain marginal productivity conditions which are easily found by using the box diagram. • Marginal rate of transformation ( MRT ): the absolute value of the slope of a production possibility curve at a point, it represents the amount of one commodity that a nation must give up to produce each additional unit of another commodity. It is another name for the opportunity cost. • Opportunity cost: the opportunity cost of a commodity is the amount of a second commodity that must be given up to release just enough resources to produce one more unit of the first commodity ( under the condition of full employment of resources, and resources are scarce ). • Various kinds of production possibility curves: constant opportunity cost; increasing opportunity cost; decreasing opportunity cost
Production possibility curve and opportunity cost(2) (a)机会成本不变 (b)机会成本递增 (c)机会成本递减
Y 0 X Y 0 X Y 0 X (a)机会成本不变 (b)机会成本递增 (c)机会成本递减 Production possibility curve and opportunity cost(2)