International Economics. Topics in Comparative Advantage

Transcription

1 Lecture 3 Interntionl Economics: Lecture 4 Topics in Comprtive Advntge Armn Gbrielyn ATC, Februry 13, 2017 Armn Gbrielyn(ATC) Interntionl Economics 1

2 Misconceptions Misconceptions bout Ricrdo s Model Myth 1:Your country ill benefit from free trde only hen it ill be ble to ithstnd to foreign competition. As shon, even hen Armeni hs loer productivity both in brndy nd grin, it gins from trde. People usully think in terms of bsolute dvntge, but tht is misleding concept. Author: Chris Grosz Armn Gbrielyn(ATC) Interntionl Economics 2

3 Misconceptions Misconceptions bout Ricrdo s Model Myth 2:Lo ges re form of slvery. Tht is vlue judgment, but even if tht is true, the slves benefit from trde, especilly if they re employed in export industries. In our exmple, if Armeni refuses to be exploited, then rel ges of brndy producers in terms of grin ill fll even further. Jsmine Akhter, 26, orks in the grment industry since hen she s 16. She erns less thn $100 month. Her living conditions re deplorble, but they ould be even orse ithout trde. If nd hen Bngldesh ill cese to be in the center of orld grment industry, most of 4mln omn employed by tht industry ill lose job nd even tht meger income. Armn Gbrielyn(ATC) Interntionl Economics 3

4 Mny goods & 2 countries Mny goods: Model extension 1 <... < L < The pttern of trde depends on reltive productivities nd reltive ge. Goods ill be produced in Armeni only if it is cheper to mke here. < < Otherise they ill be produced in Russi. > > 1 < <... < <... < L Armn Gbrielyn(ATC) Interntionl Economics 4

5 Mny goods & 2 countries Mny goods: Numericl exmple Wine Brndy Grin Gun Butter Armeni Russi Reltive productivity Armeni is 8 times lessproductive in grin, but just 2.5 times lessproductive in guns. So Armeni s comprtive dvntge is the highest in guns. Reorder ccording to decresing comprtive dvntge of Armeni, hich is the sme s incresing comprtive dvntge of Russi Gun Brndy Wine Butter Grin Reltive productivity Armn Gbrielyn(ATC) In guns bsolute disdvntge of Armeni is the lest, but comprtive dvntge is the highest. Interntionl Economics In grin bsolute dvntge of Russi is the gretest, but comprtive dvntge is the highest. 5

6 Mny goods & 2 countries Mny goods: Numericl exmple Gun Brndy Wine Butter Grin Reltive productivity In guns bsolute disdvntge of Armeni is the lest, but comprtive dvntge is the highest. In grin bsolute dvntge of Russi is the gretest, but comprtive dvntge is the highest. In free trde ge rte in Armeni my be from 2.5 to 8 times loer, thn in Russi. = 4 Armeni ill produce nd export guns & brndy. Russi ill produce nd export grin, butter, & ine. 1 < <... < <... < L Armn Gbrielyn(ATC) Interntionl Economics 6

7 Comprtive vs. Absolute dvntge Comprtive vs. Absolute dvntge < Armeni hs comprtive dvntge in good #1, s opportunity cost of good #1 in Armeni is loer. < > Armeni hs bsolute dvntge in good #1, s unit lbor requirement is loer. Armn Gbrielyn(ATC) Country my not hve bsolutedvntge in nything, but it (lmost) lys hs comprtive dvntge in something. The fundmentl bsis of trde is comprtive, not bsolute dvntge. Interntionl Economics 7

8 Comprtive vs. Absolute dvntge Comprtive dvntge is the best exmple of n economic principle tht is undenibly true yet not obvious to intelligent people. Pul Smuelson The ide of comprtive dvntge --is concept tht seems simple. Yet beyond the nrro circle of cdemic economists [one] quickly relizes tht it must be very difficult concept indeed. intellectuls someho find this prticulr ide impossible to grsp. Ricrdo s difficult ide Pul Krugmn Armn Gbrielyn(ATC) Interntionl Economics 8

9 Thnk you Thnk you nd enjoy. But remember Confucius ords Thinking ithout lerning is dngerous. Armn Gbrielyn(ATC) Interntionl Economics 9