International trade

Chapitre 2 - The ricardian model

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Flashcards	11
Language	Français
Category	Macro-Economics
Level	University
Created / Updated	08.01.2018 / 08.01.2018
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What are reasons for trade?

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Countries differences => comparative advantage

- Based of productivity (Ricardo)

- Based on endowments (HO)

OR Countries similarities

- Economies of scale

What is the source of comparative advantage for Ricardo?

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Difference in production technologies across countries.

What are the main assumptions?

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1) Perfect Competition

2) Labord only factor of production

3) Endowments given, confined to country but intersectorally mobile within each country

4) Full employment

5) 2 countries with different technologies (prod functions)

6) Constant returnes to labor

7) Numbers of goods : 2 or infinite

Def of labor requirement per unit output

Def of labor productivity

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- ai : coeff : measures the quantity of labour necessary to produce one unit of good i

- the inverse of the labour requirement : 1/ai

What is the full employment condition?

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L = ac*Qc + aa*Qa

Def of PPF

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max possible production level for a givent techno and factor endowment

Def of the opportunity cost

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the slope of the PPF indicates the opportunity cost of the two goods.

Def of world ppf

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Juxtapose the country PPFs as the outer lines

What's is the budget constraint condition?

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value of production = value of consumption

PaQa*PcQc = PaDa*PcDc

What's imply constant returns to scale?

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P = MC = AC

The fisrt equalisation ~ profit maximisation no matter what structure is

The second equalisation ~ perfect competition

What are gains from trade?

1) Rise in wages: ability to buy cheaper imports.

2) Increase in consumtion : countries to consume outside their PPF.

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International trade

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