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ECON3116 International Trade
Creation date：2024-06-19 14:42:02
Belonging category：经济Economics
International Trade

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ECON3116

International Trade
Theory & Policy
Van Pham | ECON3116 International Trade Theory and Policy
2-1
1. Introduction to international trade models
2. The concept of Comparative Advantage
3. The Ricardian model: Autarky – one country
4. The Ricardian model: Trade – two countries
5. Gains from trade in the Ricardian model
6. Misconceptions about comparative advantage
7. Comparative advantage with many goods
8. Adding transport costs and nontraded goods
9. Empirical evidence on the Ricardian model
Lecture Plan
Van Pham | ECON3116 International Trade Theory and Policy
Models of International Trade
• Each model examines one particular issue in greater detail and depth. No
one model captures the whole picture and should not be judged as such.
• A grand all-encompassing model can be built (& solved on computer for
applying), but it would be too complex to understand and learn from.
2-2
Van Pham | ECON3116 International Trade Theory and Policy
2-3
Traditional models of international trade
• Primary factors produce final goods directly; no intermediate goods.
• Factors are not internationally mobile; no migration or capital flows.
• Goods internationally tradeable, with restrictive trade policies, but no
transport costs.
• Perfectly competition in both world market for goods and domestic market
for factors.
• Country may be large player in trade, but individual producers are small.
• This assumption is relaxed in latter half of course.
Van Pham | ECON3116 International Trade Theory and Policy
2-4
Comparative Advantage and the Ricardian model
Sources of Comparative Advantage and Trade
• Cross-country differences in technologies
• Cross-country differences in factor endowments (land, capital and labor)
• Cross-country differences in demand (different preferences)
• Exploiting economies of scale in production
• The Ricardian model: Countries engage in trade because of
their technological differences as reflected in differences in their
relative labour productivity.
Van Pham | ECON3116 International Trade Theory and Policy
The Concept of Labour Productivity
2-5
• A country has a high labour productivity if its unit labor requirement is low.
• aLW is the number of hours of labor required to produce one unit of wine.
For example, if

= 3 and
= 2
then French workers are more productive in producing wine than Australian
workers.
• Marginal product of labour (MPL) – is the amount of output produced by an
additional worker.

=
1

=
1
3

=
1

=
1
2
Van Pham | ECON3116 International Trade Theory and Policy
2-6
• A country has an absolute advantage in a sector if it can produce a greater
output of that sector using the same amount of resources.
• Labour productivity determines the absolute advantage of a country.
The Concept of Absolute Advantage
• Example: If each country, Australia and France, has =1200 (labour hours) in
wine production, the total wine output in each country is

=

=
1200
3
= 400,

=

=
1200
2
= 600.
→ France has an absolute advantage in producing wine.
Van Pham | ECON3116 International Trade Theory and Policy
Opportunity Cost
• The opportunity cost of an unit of cheese is the amount of wine that could be
produced using the same resources.
• E.g. suppose that either 10 pounds of cheese or 5 gallons of wine can be
produced using 10 hours of labour.
▪ OC of 1 pound of cheese is 0.5 gallon of wine
▪ OC of 1 gallon of wine is 2 pounds of cheese.
Comparative Advantage
• A country has a comparative advantage in producing a good if it has a lower
opportunity cost of producing that good than other countries.
• The Ricardian model expands on this concept.
The Concept of Comparative Advantage
Van Pham | ECON3116 International Trade Theory and Policy
Assumptions
1) Two countries: Home and Foreign
2) Two goods: Cheese and Wine
3) One factor: Labour
4) The labour productivity in each good is fixed.
5) Labour mobile across industries, but not across borders.
6) Perfect competition in both goods and factor markets
7) Labour productivities will differ across countries – this will be the
basis for trade between the two countries
2-8
The Ricardian Model - Assumptions
Van Pham | ECON3116 International Trade Theory and Policy
Technology:
The production functions for cheese and wine are:
=


=


where and are the fixed input-output coefficients, indicating the amount
of labour needed to produce one unit of output.
Here and are outputs and and are inputs of labour in the two
sectors.
• Exercise: Sketch each function in labour-output space.
1-9
The Ricardian Model - Technology
Van Pham | ECON3116 International Trade Theory and Policy
Labour Endowment
• L is the total labour endowment, so
+ = ,
2-10
The Ricardian Model - Technology
where ≥ 0, ≥ 0.
• The production possibility set (PPS) of an economy shows all combinations of
goods that can be produced with a fixed amount of resources. It is given by
+ ≤ , where ≥ 0, ≥ 0.
Case category
Tag cloud
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SVM. (10 points) Consider an SVM classifier using RBF kernel, and finish the following python code to search for the optimum kernel parameter γ. You are required to calculate the RBF function and search yourself, instead of using functions in Scikit-Learn (sklearn). def parameter search(gamma list ,Xtr,ytr,Xts,yts ,...): """ Parameters gamma list: A list of RBF kernel parameter gamma to search for Xtr: Training data, shape (ntr,nrow,ncol) ytr: Training labels, shape (ntr,) Xts: Test data, shape (nts,nrow,ncol) yts: Test labels, shape (nts,) ... Add other parameters as needed Returns: gamma optimum: The gamma with minimum error on Xts, yts """ ... return gamma optimum
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