International trade Theory and policy School of Economics, Yunnan University Zhang Jianhua and zhang Lin
International Trade Theory and Policy School of Economics, Yunnan University Zhang Jianhua and Zhang Lin
Chap 1 Introduction One, Course Outline Basic theory in Economics(Analysis of commodity and factor mobility in open Macro economy by tools Microeconomics Contents: 1. Pure Theory in International Trade( reason and Influence of International Trade) 2. Policy of International Trade Policies aiming at limiting imports while encouraging exports 3. Institutions for International Trade (wto Institutions
Chap. 1 Introduction ◼ One. Course Outline ◼ Basic theory in Economics ( Analysis of commodity and factor mobility in open Macro economy by tools Microeconomics ◼ Contents: 1. Pure Theory in International Trade ( Reason and Influence of International Trade) 2. Policy of International Trade （Policies aiming at limiting imports while encouraging exports） 3. Institutions for International Trade（WTO Institutions ）
Two Basic Concepts balance of trade 1. Trade Surplus(Exports>ImpOrte Favorahle Balancaof Trade) 2004、2005年 2. Trade Deficit( Exports< Imports中国的贸易收支 of Trade) 3. Trade Balance (Exports= Imports) Trade structure 2005年中国主要进出口商品 1. Commodity Structure 2. Geographical Structure Dependency of frade 2004年中国对外贸易依存度 接近70%
Two Basic Concepts ◼ balance of trade 1. Trade Surplus（Exports＞Imports，Favorable Balance of Trade） 2. Trade Deficit （Exports＜Imports，Unfavorable Balance of Trade） 3. Trade Balance （Exports ＝ Imports） ◼ Trade Structure 1. Commodity Structure 2. Geographical Structure ◼ Dependency of Trade 2004、2005年 中国的贸易收支 2004年中国对外贸易依存度 接近70% 2005年中国主要进出口商品
Chap 3 Comparative Cost and Classical Trade Theorem In this chapter, we introduce theorem of international trade We start such introduction looking at causes of international trade and its influences in the economy( in Chap 3, 4, 5 and 6), then we will analyze the influences of economics in trade One, Theory of Absolute Cost Theory of absolute cost It is a theoretical explanation to the cause of international trade Introduced by Adam Smith in his " Wealth of Nations
Chap. 3 Comparative Cost and Classical Trade Theorem ◼ In this chapter, we introduce theorem of international trade. We start such introduction looking at causes of international trade and its influences in the economy ( in Chap 3, 4, 5 and 6), then we will analyze the influences of economics in trade. One, Theory of Absolute Cost Theory of absolute cost It is a theoretical explanation to the cause of international trade Introduced by Adam Smith in his “ Wealth of Nations
Graph of absolute Cost Unit Cost Calculated in terms of labor UK Portugal Carpet 4 6 Wine 3 Each country produces Trade based goods absolutely low in Could on division cost, in exchange for countries Of abor have other countries goods trade absolutely low in cost without absolute Reason of trade is because of difference differences in absolute cost in cost?
Graph of Absolute Cost Unit Cost Calculated in terms of labor UK Portugal Carpet Wine 4 8 6 3 Each country produces goods absolutely low in cost, in exchange for other countries’ goods absolutely low in cost Trade based on division o f l a b o r Reason of trade is because of differences in absolute cost Could countries have trade without absolute difference s in cost?
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