International Economics
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Dominick-Salvatore-International-Economics
Part II: pp. 685–760. For an extension of the Ricardian model to many commodities, see: ■ R. Dornbusch, S. Fischer, and P. Samuelson, “Com- parative Advantage, Trade and Payments in a Ricardian Model,” American Economic Review , December 1977, pp. 823–839. For empirical tests of the Ricardian trade model, see: ■ G. D. A. MacDougall, “British and American Exports: A Study Suggested by the Theory of Comparative Costs,” Eco- nomic Journal , December 1951 (Part I: pp. 697–724) and September 1952 (Part II: pp. 487–521). Reprinted in R. E. Caves and H. G. Johnson, Readings in International Eco- nomics (Homewood, Ill.: Irwin, 1968), pp. 553–578. ■ R. M. Stern, “British and American Productivity and Compar- ative Costs in International Trade,” Oxford Economic Papers, October 1962, pp. 275–296. ■ B. Balassa, “An Empirical Demonstration of Classical Com- parative Cost Theory,” Review of Economics and Statistics, August 1963, pp. 231–238. ■ S. S. Golub and C. T. Hsieh, “The Classical Ricardian The- ory of Comparative Advantage Revisited,” Review of Interna- tional Economics, May 2000. I N T E R N e t For trade policies of all the member countries of the World Trade Organization, see: http://www.wto.org For information and description of new reports and anal- yses on international trade theory and policies, generally supporting a liberal trading system, published by the Insti- tute for International Economics, see: http://www.iie.com The case against free trade is made by the Public Citizen Global Trade Watch, an organization created by Ralph Nader (the consumer advocate), which is found at: http://www.citizen.org/trade Salvatore c03.tex V2 - 10/26/2012 1:00 P.M. Page 57 The Standard Theory of International Trade chapter L E A R N I N G G OA L S : After reading this chapter, you should be able to: • Understand how relative commodity prices and the comparative advantage of nations are determined under increasing costs • Show the basis and the gains from trade with increasing costs • Explain the relationship between international trade and deindustrialization in the United States and other advanced nations 3.1 Introduction This chapter extends our simple trade model to the more realistic case of increas- ing opportunity costs. Tastes or demand preferences are introduced with community indifference curves. We then see how these forces of supply and demand deter- mine the equilibrium-relative commodity price in each nation in the absence of trade under increasing costs. This will also indicate the commodity of comparative advantage for each nation. Subsequently, we examine how, with trade, each nation gains by specializing in the production of the commodity of its comparative advantage and exporting some of its output in exchange for the commodity of its comparative disadvantage. The last section of the chapter shows how mutually beneficial trade is possible even when two nations are exactly alike except for tastes under increasing cost conditions. In this and in the following chapters, it will be convenient to generalize the presentation and deal with Nation 1 and Nation 2 (instead of the United States and United Kingdom) and commodity X and commodity Y (instead of wheat and cloth). The appendix to this chapter is a review of those aspects of production theory that are essential for understanding the material presented in the appendices of the chapters that follow. This and the subsequent appendices can be omitted without loss of continuity in the text. 57 Salvatore c03.tex V2 - 10/26/2012 1:00 P.M. Page 58 58 The Standard Theory of International Trade 3.2 The Production Frontier with Increasing Costs It is more realistic for a nation to face increasing rather than constant opportunity costs. Increasing opportunity costs mean that the nation must give up more and more of one commodity to release just enough resources to produce each additional unit of another commodity. Increasing opportunity costs result in a production frontier that is concave from the origin (rather than a straight line). 3.2 A Illustration of Increasing Costs Figure 3.1 shows the hypothetical production frontier of commodities X and Y for Nation 1 and Nation 2. Both production frontiers are concave from the origin, reflecting the fact that each nation incurs increasing opportunity costs in the production of both commodities. Suppose that Nation 1 wants to produce more of commodity X, starting from point A on its production frontier. Since at point A the nation is already utilizing all of its resources with the best technology available, the nation can only produce more of X by reducing the output of commodity Y. (In Chapter 2, we saw that this is the reason production frontiers are negatively sloped.) Figure 3.1 shows that for each additional batch of 20X that Nation 1 produces, it must give up more and more Y. The increasing opportunity costs in terms of Y that Nation 1 faces are reflected in the longer and longer downward arrows in the figure, and result in a production frontier that is concave from the origin. 0 10 30 50 70 90 110 130 Nation 1 Download 7.1 Mb. Do'stlaringiz bilan baham: |
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