Please enable JavaScript.
Coggle requires JavaScript to display documents.
Economics of Globalisation (Part 1 - Aug 2020) (Weeks 4&5 (Chap 4)…
Economics of Globalisation (Part 1 - Aug 2020)
Week 1 (Chap 1) Globalisation and Supply and Demand
A. Welcome
Assessment
Class Participation (5%)
Online (5%)
LearnSmart Practice Question (2.5%)
Weekly Homework (2.5%)
Team Project and Presentation (25%)
Exam
Mid Term (15%)
Final Exam (50%)
Overview of EoG
CONNECT registration
B (1). Basics of DD and SS
DD and SS Model
Welfare: Consumer and Producer Surplus
Price Elasticity of DD and SS
Invisible hand theory
Circular Flow Model
B(2). Using DD-SS Mode to Analyze International Trade
Q1: Why do countries trade? What is the basis for trade?
Q2. What are the overall gains from trade? Who gains more? Who gains less?
Q3. What are the effects of trade on consumption / production? Economic structure?
Q4: What are the effects of trade on distribution of income?
Using DD and SS Model - Analyze trade between US and ROW (1 good, motorbike / 2 country)
Weeks 4&5 (Chap 4) Trade - Factor Availability & Proportions
B. PPF (increasing OC) using 4-quadrant diagram
Production possibility frontier: Increasing Opp Cost
Factor Labor Constraint
Production Function (Wheat)
Production Function (Cloth)
C. Map of Indifference Curves (IC)
D. Gains from Trade Using H-O Model
Consumption and Production (before trade)
Tangency of PPF and IC (point S0)
At price ratio (Pc/Pw)
Consumption and Production (after trade)
At Terms of Trade
Tangency of PPF and TOT (point S1)
Tangency of IC and TOT (point C)
Combine Production Functions for Wheat (using K and L as inputs)
A. Heckscher-Ohlin's Theory of Factor Endowment
Factor Intensive (Industry: e.g. wheat is land-intensive)
Factor Abundant (Country; e.g.US is land-abundant)
Context: 2-Country/2-Good/2-Factor: US & ROW / Cloth & Wheat / Labor & Land
Weeks 2&3 (Chap 3) Why Everybody Trades? - Comparative Advantage
B. Adam Smith AA & David Ricardo CA
Context: 2-Country / 2-Good / 1-Factor: US & ROW/ Cloth & Wheat / Labor
Absolute Advantage
Unit Labor Requirement; Labor Productivity
Absolute Cost
Production Possibility Frontier (PPF)
Comparative Advantage
Production Possibility Frontier (PPF)
Opportunity Cost
Approach: Numerical Example / PPF
C. Gains from Trade using Ricardo Model
Terms of Trade (between two opportunity cost ratios)
Trade analysis
Full Specialisation based on CA
Exports / Imports
Trade triangle
Consumption and Production (before and after trade) (S0 & S1; S0 & C0) :
Illustrate PPF: US + ROW / Labor Constraints
Combine PPF (US and ROW)
Opportunity cost ratios
Terms of trade
A. History of Modern Trade
Ignore: (Chap 8) Analysis of Tariffs
Tariffs by Small Importing Country
Welfare comparison (Consumers / Producers / Government)
Consumption Effect (d)
Redistribution Effect (a)
Protective/Production Effect (b)
Revenue Effect (c)
deadweight loss (b+d)
Tariffs by Large Importing Country
Monopsony power
Example: Beer Tax (Price buyer pay / Price seller receive)
Terms of trade effect (e)
area e < b+d
area e > b+d
Analysing Tariff Using SS-DD Schedules
Equilibrium at "No Trade"
Equilibrium at "Free Trade"
Equilibrium with "Tariff Trade"
Week 9 (Chap 12) Trade Blocs and Trade Blocks; Team Presentation
Trade Blocs
Trade Diversion (loss in area c)
Trade Creation (gain in area b)
National gain (area b > area c) / Trade creation dominates
National loss (area c > area b) / Trade diversion dominates
Trade Blocks (Embargoes)
Types of failure of Embargoes
Economic failure
Embargo that backfires ("large loss of area a" > "small damage of area b+c")
Embargo that was virtually irrelevant ("small loss of area a" > "small damage of area b+c")
Elasticities of SS and DD
Political failure
Players
Target Country (N Korea)
Embargoing Countries / Initiator (US, UK)
Non-embargoing Countries (China, Russia)
**Week 7 (Mid-Term Test)
Mid Term Test (15%)
Complete Chap 5 (Part II)
Chap 12
Weeks 6&7 (Chap 5) Who Gains and Loses From Trade?
Overview: 3 Implications of Heckscher-Ohlin Model
Stolper-Samuelson Theorem (Long Run)
Output prices (Pc, Pw) for Cloth and Wheat
Factor Prices (w, r) for Laborer and Landowners
Abundant-factor gains / Scarce-factor loses
Intuition
"What you do matters" / "Who you are associated with"
Effects of Trade on Factor Prices
H-O Theorem (Week 3)
Factor Abundance
Factor Intensity
Labor-abundant country exports labor-intensive good
Land-abundant country exports land-intensive good
"Characteristics of the country"
Factor Price Equalization
F. The Factor-Price Equalisation Theorem
Factor prices in US (wages, rental rates)
Factor prices in ROW (wages , rental rates)
Effects of free trade on factor prices and incomes
E. Long Run (factors are mobile across sectors)
Abundant-factor gains / Scarce-factor loses
Stolper-Samuelson Theorem
Intuitive
"What you do matters" / "Who you are associated with"
D. Short Run (increase in Pc, Pw no change)
Factors tied to the export sector gains / Factors tied to import sector loses.
Immobile Factor Model
7% increase Pc: exact 7% increase wage for cloth laborers / no % increase in wage for wheat laborers
"Where you work matters"
C. Medium Run (increase in Pc; Pw no change)
Specific Factor Model
Labor is mobile, but Specific factor is immobile
Impact of trade on labor is ambiguous
7% increase Pc: (< 7% increase in wage of cloth and wheat laborers)
B. Heckscher-Ohlin Theorem
Labor Market for Wheat and Cloth
Production function
MPL
Value of MPL = MPL * Pc
wage rate
Demand for labor
Wheat
Cloth
Context: 2-Country / 2-Good / 2-Factor: US & ROW / Cloth & Wheat / Labor & Land
Video:
Toyota
Video: Trump's Steel Tarriff
Video: North Korea Nuclear and Cuba Cigar
Video: UK Sheep Protection
Video: Cone Denim
Video: Obama
Video: Lim Kee Food Mfg
Article: Trump's view is so 60's ... 1860's
Video: Paul Krugman