Kernel of the Chapter课件.pptVIP

Kernel of the Chapter The Concept of Comparative Advantage Trade in a One-Factor World Misconceptions About Comparative Advantage Extension of the model: Comparative Advantage with Many Goods Transport Costs and Non-traded Goods Empirical Evidence on the Ricardian Model Introduction International trade for two basic reasons: Difference in terms of climate, land, capital, labor, and technology. Scale economies in production. Ricardian model based on technological differences across countries. Reflected in differences in the productivity of labor. The Concept of Comparative Advantage On Valentine’s Day the U.S. demand for roses is about 10 million roses. Growing roses in the U.S. in the winter is difficult. Resources for the production of roses could be used to produce other goods, say computers. The Concept of Comparative Advantage Opportunity Cost The opportunity cost of roses in terms of computers is the number of computers that could be produced with the same resources as a given number of roses. Comparative Advantage A country has a comparative advantage in producing a good if the opportunity cost of producing that good in terms of other goods is lower in that country than it is in other countries. The Concept of Comparative Advantage Suppose that in the U.S. 10 million roses can be produced with the same resources as 100,000 computers. Suppose also that in Mexico 10 million roses can be produced with the same resources as 30,000 computers. This example assumes that Mexican workers are less productive than U.S. workers. The Concept of Comparative Advantage If each country specializes in the production of the good with lower opportunity costs, trade can be beneficial for both countries. The benefits from trade can be seen by considering the changes in production of roses and computers in both countries. Table 2-1: Hypothetical Changes in Production The Concept of Comparative Advantage Conclusion from the above: If each country expor