In evaluating the efficiency gain of international trade, we are concerned about the entire country or community, and thus encounter a more complicated situation with several individuals making up the entire country. Answer these questions (provide graphs if you want):
What is meant by the community indifference curve?
The community indifference curve shows the various combinations of two commodities which yield the same level of satisfaction or utility to a community or nation. It is intended to represent the preferences of a country as a whole and is a convenient tool for deriving quantities of trade in a two-good model. The slope of a curve at any point gives the marginal rate of substitution or the amount of a commodity which a nation is willing to give up to obtain an additional unit of another commodity. The community indifference curve can also be used to show how international trade increases community welfare.
Can these curves intersect one another? Show.
Yes. Community indifference curves can intersect because the indifference map of a country is linked to a particular income distribution within that country. If the income distribution is different, then there is a different community indifference map, and the curves of the new map may intersect those of the previous map. This is usually what happens when a country opens up or expands trade.
What are assumptions that one needs to make in order to come up with non-intersecting community indifference curves?
Non-intersecting community indifference curves are supposed to exist if both of the following assumptions are met:
The utility functions for the individuals are homogenous and;
Either (a) the utility functions are identical or (b) the distri...
... middle of paper ...
... the other good, thus resulting in gains from trade.
If there is trade in factors but no trade in goods, the first two assumptions listed above still apply. Assuming that both countries are able to produce the same pair of commodities, the third equation changes to balance in trade of factors of production (instead of goods) and the equilibrium prices obtained will be factor prices. Thus, the assumption that “the value of what a country sells on world markets is equal to the value of what it buys” should still hold.
Works Cited
Cherunilam, F. (2008). International Economics. New Delhi: Tata McGraw-Hill Education.
Markusen, J. R., Melvin, J. R., Kaempfer, W. H., & Maskus, K. E. (1995). International Trade: Theory and Evidence. USA: McGraw-Hill, Inc.
Salvatore, D. (1984). Schaum's Outline of Theory and Problems of International Economics. USA: McGraw-Hill, Inc.
Academic Consortium on International Trade (2000) Letter to Presidents of Universities and Colleges. Available at: http://www.spp.umich.edu/rsie/acit/ [Accessed 1 April 2014]
(v) Everyone is able to observe the number of people (i.e. the effective colour ratio) in the neighbourhood,
Samuelson, Paul A. “Theoretical Notes on Trade Problems.” JSTOR. The MIT Press, May 1964. Web. 20 Feb. 2014.
One principle of fair trade is the agreed minimum price that is set above the market price. Each fair-trade
(ARE) Profile of Exports, Imports and Trade Partners. Creative Commons Attribution-ShareAlike 3.0 Unported License, n.d. Web. 13 May 2014.
My first point is how free trade improves everyone’s lives that are involved in the process of trading freely. Arthur Foulkes, a writer from The Freeman, states that, “The magic of trade allows us to improve our lives while improving the lives of other” (1). Foulkes is talking of how he tried to teach fifth graders some of the qualities of trading freely with others and claims that, “As long as the people trading do so voluntarily, trade is always a win-win proposition” (1). By stating this Foulkes means that as long as people are not forced into or paying for trade then everyone wins that is involved in the trade thus making everyone’s life better off. Arthur Foulkes makes many good p...
Unexplained trade pattern that is not consistent with H-O Theorem was observed and more information regarding both countries functioning is needed. However, we can conclude that H-O Theorem is accurate and countries are exporting goods that use the factor of productions they are abundant in.
To understand how the Leontif paradox challenges the overall applicability of the factor-endowment theory, you must first comprehend what the factor-endowment theory asserts. The factor-endowment theory states that trade between nations is based on the difference in pretrade product prices. Pretrade product prices are dependent on production possibilities. Production possibilities can be linear as in constant cost conditions or curved as in increasing cost conditions. Based on the cost per unit, a county will specialize in the production of a product that they have a comparative cost advantage.
Countries, in general, choose to produce a surplus of the product in which they specialize and trade it for a different surplus good of another country. It is only based on that that traders decide on whether they should export or import goods depending on comparative advantages. In this case of Sri Lanka and Kenya their opportunity cost is presented as follow: for 1000 bag of rice, 3000 bags of tea are produce therefore we can assume that the opportunity cost of 1 bag of tea is 1/3 bags of rice in Sri Lanka while in Kenya the opportunity cost is 1 bag of tea for 1 bag of rice. Based on that we can assert that Both counties can decide to trade with each other based on their specialization because Kenya’s opportunity cost is less than Sri Lanka’s opportunity cost of rice, therefore, Kenya has a comparative advantage in the production of rice while Sri Lanka has a comparative advantage in the production of
The dependent variable in our analysis is the natural log of total bilateral trade (exports plus imports) measured in current international prices (dollar value). Our analysis is based on the maximum possible geographical coverage of world trade flows.
The global economy needs free trade. Countries need free trade. Trade with other countries occurs at some level in every country globally. There may be some indigenous tribes within some countries that can lay the claim that they are self-sufficient, however, there is not a single country that can say the same. Proponents of an open trading system contend that international trade results in higher levels of consumption and investment, lower prices of commodities, and a wider range of product choices for consumers (Carbaugh, 2009, p26). Free trade is necessary. How do countries decide what to import and what to export?
WTO (2007) World Trade Report 2007 of International Trade Cooperation. Sixty Years of the Multilateral Trading System: Achievements and Challenges
1. The fundamental advantage of free trade is the variety of items and the cost of them. People are
• Impractical Policy: Composed sorted out trade is poor upon the presumption of free wander
In order for international trade to work well, governments must allow the world market to determine how goods are sold, manufactured and traded for all to economically prosper. While all nations may have the capability to produce any goods or services needed by their population, it is not possible for all nations to have a comparative advantage for producing a good due to natural resources of the country or other available resources needed to produce a good or service. The example of trading among states comprising the United States is an example of how free trade works best without the interve...