Three, Classical Trade Model( One Factor) 1X=3Y National a National B X B 1X=1Y D Price of x falls in international market, and Price of y also falls finally reaches an equilibrium price, say, T(1XE2Y)
Three, Classical Trade Model ( One Factor ) Y O X A B Y O X C D T T 1X = 1Y 1X = 3Y Price of X falls in international market, and Price of Y also falls, finally reaches an equilibrium price, say, T(1X=2Y) National A National B
Influence of International trade X in nation B Production 0 consumption OX1( Imports) Consumption Yin nation I consumption combination is in higher- i Production oc T i position indifference Consumption OY1, surplus curve, better trade off Y1C M E U X X B X X1 D Price: X( more comparative X in Nation a advantage )raised Production OB, Consumption OXO, Surplus XOB( Export Production:Production of X I in Nation A expanded( Perfect Production: 0, Consumption OYo( imports) specialization
Influence of International Trade Y O X A B Y O X C D T T E J U0 U1 U0 U1 F M Price: X ( more comparative advantage ) raised Production：Production of X expanded ( Perfect specialization ) Consumption: consumption combination is in higherposition indifference curve, better trade off X in Nation A: Production OB, Consumption OX0, Surplus X0B( Export ) Y in Nation A: Production: 0, Consumption OY0 ( imports) X0 Y0 X in nation B Production 0, consumption OX1( Imports) Y in nation Production OC, Consumption OY1, surplus Y1C X1 Y1
Chap 4, Mutual Demands Theory Used to explain how exchange rate is fixed, and how it varies One, Terms of trade Price Index of exports T Price Index of Im ports T: Improvement of trade condition: each unit of export can exchange for more im ports T Deterioration of trade condition: each unit of export exchanges for less imports
Chap. 4, Mutual Demands Theory Used to explain how exchange rate is fixed, and how it varies. One, Terms of Trade T = PX PM Price Index of exports Price Index of Imports T ：Improvement of trade condition: each unit of export can exchange for more imports T ：Deterioration of trade condition: each unit of export exchanges for less imports
Changes in Terms of Trade Y3上一一一 Y 0 X X X Xo x1 X X Improvement of Trade Improvement of Trade condition in a condition in B
Changes in Terms of Trade Y O X T0 T1 T2 T3 X0 Y0 Y1 Y2 Y3 Improvement of Trade C o n d i t i o n i n A Y X O T3 T2 T1 T0 Y0 X0 X1 X2 X3 Improvement of Trade C o n d i t i o n i n B
Offer curve G Offer 0 F Curve A B T 0 N X X X2x1 X T2 To: Export LA(=OXo), Import EL (=OYo Each point along offer curve means the T1: EX MB (=OX),Im FM(=OY1 equilibrium im port and export in certain T2: EX NC (=OX2), Im GN(=OY2 exchange rate
Offer Curve O X X Y T0 T1 T2 U0 U1 U2 C A B E F G L M N X2 X1 X0 Y0 Y1 Y2 T0：Export LA（= OX0），Import EL（= OY0） T1： Ex MB（= OX1），Im FM（= OY1） T2： EX NC（= OX2），Im GN（= OY2） T2 T1 T0 Offer Curve Each point along offer curve means the equilibrium import and export in certain exchange rate