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165 ch6 - Coggle Diagram
165 ch6
David Ricardo's theory of comparative advantage focues on differences in labor productivity
Principle of political Economy
-A country should specialize in the production of goods it produces most efficiently and buy the goods it produces less efficiently from other countries, even if it can produce those goods more efficiently itself
-positive-sum game, both countries can benefit from trade by specializing in the production of goods in which they have a comparative advantage
1.
generally free trade
Assumptions Qualifications
-simple world ith two countries are to goods
-no transportation costs
-no diff in price of resources
-resources can move freely
-constant returns to scale
-Each country has a fixed stock of resources and free trade does not change the efficiency with which a country uses its resources
-no effects of trade on income distribution within a country
:red_cross:
Immobile resources
-resources not always move easily from one economic activity to another
-political opposition to a free trade regime typically comes from those whose jobs are most at risk
Diminishing returns
-assumes constant returns to specialization, but more realistic to assume diminishing returns
-not all resources are the same quality
-different goods use resources in different proportions
:check: Dynamic effects and economic growth (if free trade)
two types of dynamic gains
-Increase a country’s stock of resources as increased supplies of labor and capital from abroad become available within the country.
-Increase the efficiency with which a country uses its resources.
--> these two gains cause PPF shift outward
:question:Critique pg18
Paul Samuelson
-benefit consumers, harming others workers in certain industries (domestic workers)
-acknowledged that historically, free trade has benefited wealthy countries.
-Protectionist measures is also harmful
(such as tariffs and quotas, can lead to higher prices for consumers, reduced efficiency, and retaliation from other countries. These measures can also discourage innovation and competition)
Krugman's new trade theory focuses on first-mover advantages
-Cost reductions associated with large-scale production. Can have important implications for international trade.
-Trade can increase the variety of goods available to consumers and decrease the average cost of those goods.
-only a small number of companies can achieve cost efficiencies by producing on a large scale.
:red_flag:-First mover advantages:
Economic and strategic advantages accruing to the first to enter a market.
Can gain a scale-based cost advantage; later entrants find it almost impossible to match.
2.
without trade:
-The variety of goods a country can produce and the scale of production are limited by the size of the market.
-Low volumes and higher costs.
with trade
-individual national markets are combined into a larger world market.
-Each nation can increase the variety of goods and lower the costs of those goods.
Implication:
-Nations may benefit from trade even when they do not differ in resource endowments or technology.
-A country may predominate in the export of a good simply because it was lucky enough to have one or more firms among the first to produce that good.
-May create a barrier to entry.
-strategic government intervention, (such as subsidies or trade policies that support certain industries), may be beneficial for a country to compete in global markets.
Heckscher-Ohlin theory focuses on factors of production
Factor Endowments (capital labor land)
-comparative advantage arises from diff in national factor endowments
-Countries will export goods that make intensive use of factors that are locally abundant.
-Countries will import goods that make intensive use of factors that are locally scarce.
1.
:question:Leontief Paradox
-question abt validity
-found US exports were less capital intensive than US imports
根据Ohlin理论，美国应该出口更多的资本密集型产品，因为美国是一个资本丰富的经济体。但是Leontief的研究发现，美国出口的产品实际上不如其进口产品资本密集，这与Ohlin理论的预测不符
Vernon's product life-cycle theory focuses on production location changes as products become more widely accepted
pg 22
(The United States may have an initial advantage in developing and exporting new products due to its technological expertise, but as the product becomes more standardized and demand grows in other countries, those countries may catch up and begin producing the product at lower costs, ultimately limiting the potential for continued exports from the United States.)
:red_cross:Historically, an accurate theory.
Now seems ethnocentric and increasingly dated.
Porter's competitive advantage theory
-believed existing theories only told part of the story
-explain why a nation achieves international success in a particular industry
-Four broad attributes of a nation shape the environment in which local firms compete:
Factor endowments.
Demand conditions.
Related and supporting industries.
Firm strategy, structure, and rivalry
2.
porter's diamond pg30
360 view implication
-Location: from a profit perspective, firms should disperse production to countries where they can be performed most efficiently.
-First-mover advantages: it pays to invest substantial financial resources in building an early advantage.
-Government policy: businesses can exert a strong influence on government trade policy.
*government should invest in education, infrastructure, and basic research.
absolute advantage:
the ability of a country produce a particular good or service more efficiently than another country or company, with same resources, produce more
Comparatative advantages:
ability of a country or company to produce a particular good or service at a lower opportunity cost than another country or company
free trade: gov does not attempt to influence thru quotas or duties what its citizens can buy from another country or what they can produce and sell to another country
limits on imports benefits domestic producers, not domestic consumers.
Gains from trade theroy: explains why international trade is beneficial even for products a country can produce itself
内容：countries specialize in production (and export) of goods and services that they produce most efficiently, while importing goods and services that they cannot produce efficiently from other nations
- call for Unrestricted free trade
- justify limited gov intervention for certain export-oriented industries. (not same as mercantilism altho advocate gov intervention)
Adam Smith theory of absolute advantage
The wealth of nations;
-country has an absolute advantage in producing a product when it is more efficient than any other country at producing at
-countries should specialize in the production of goods for which they have an absolute advantage and then trade these goods for goods produced by other countries.
-both countries benefit from specialization and trade
1.
Attacked the mercantilist assumption of zero-sum game
Mercantilism
-advocates gov involvement in promoting exports and limiting imports
(opposite to unrestricted trade)
-gov intervention to achieve a surplus in the balance of trade: export more than it import
-Flaw: views trade as a zero-sum game: a gain by one country results in a loss by another