Chap 3. 2. Comparative Cost David ricardo, 1817 ■ Background Cultivation of wheat expands, 损 land of grass shrinks, and 眚「要 price of wool goes up 谷|麦 资/求 物价 Labor is more expansive 格 法1上 Food expend increases, end 涨 goods expend decreases 阶级的利 自由贸易 Revenge from other countries, export of end products decrease
Chap 3. 2. Comparative Cost ◼ David Ricardo，1817 ◼ Background 谷 物 法 Cultivation of wheat expands, land of grass shrinks, and 小 price of wool goes up 麦 价 格 上 涨 Labor is more expansive Food expend increases, end goods expend decreases Revenge from other countries, export of end products decrease 损 害 了 资 产 阶 级 的 利 益 要 求 自 由 贸 易
Case of ricardian model Assum ptions: Two nations, two products, one factor, fixed productivity, sufficient em ployment, perfect com petition, non-mobility of factor, barter, no technological improvement, no transportation cost Unit Cost Calculated in terms of labor Britain Portugal Carpet 4 6 Wine 8 10 The absolute costs of both products in Britain is lower than that in Portugal, why is there still trade between these two countries
Case of Ricardian Model Unit Cost Calculated in terms of labor Britain Portugal Carpet Wine 4 8 6 10 Assumptions： Two nations, two products, one factor, fixed productivity, sufficient employment, perfect competition, non-mobility of factor, barter, no technological improvement, no transportation cost The absolute costs of both products in Britain is lower than that in Portugal, why is there still trade between these two countries
A necessary condition of international trade: Comparative cost difference 两利相权取其重,两弊相权取其轻 A sufficient condition of international trade: international exchange rate is between domestic exchange rates in both countries There is benefit from trade Limitation Why there is comparative cost
A necessary condition of international trade: Comparative cost difference A sufficient condition of international trade: international exchange rate is between domestic exchange rates in both countries. There is benefit from trade Limitation：Why there is comparative cost ？
Chap3. 3. Classical trade model based on comparative cost Used to explain: Reasons and influences of trade( Price, Production, Consumption and Welfare 1, Analysis Tools 1) Production A(0,100) Possibility Curve The maximum c(X1,Y1) production when factors are fully employed B(100,0)
Chap3. 3. Classical trade model based on comparative cost Used to explain：Reasons and influences of trade ( Price, Production, Consumption and Welfare. 1, Analysis Tools 1) Production Possibility Curve The maximum production when factors are fully employed. A（0，100） B（100，0） O X Y C（X1，Y1）
Property of Production Possibility Curve Slope of PPc is equal to marginal opportunity cost Y The cost of 5 gIving up one benefit for getting another Maximum cost may not be optimum production We have to introduce indifference curve in order to get optimum production
Property of Production Possibility Curve Slope of PPC is equal to marginal opportunity cost A B 5 4 3 4 O X Y The cost of giving up one benefit for getting another Maximum cost may not be optimum production. We have to introduce indifference curve in order to get optimum production