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International Trade - PowerPoint PPT Presentation


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International Trade. The Gains from Trade. The law of comparative advantage specialisation as the basis for trade absolute advantage comparative advantage the gains from trade based on comparative advantage. Production possibilities for two countries. Pre-trade exchange ratios.

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International Trade


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    Presentation Transcript
    1. International Trade

    2. The Gains from Trade • The law of comparative advantage • specialisation as the basis for trade • absolute advantage • comparative advantage • the gains from trade based on comparative advantage

    3. Production possibilities for two countries Pre-trade exchange ratios Less developed country: 2 wheat for 1 cloth Developed country: 1 wheat for 2 cloth International trade exchange ratios (LDC exports wheat: DC exports cloth) Less developed country: 1 wheat for 1 cloth Developed country: 1 wheat for 1 cloth

    4. Production possibilities for two countries Pre-trade exchange ratios Less developed country: 2 wheat for 1 cloth Developed country: 1 wheat for 2 cloth International trade exchange ratios (LDC exports wheat: DC exports cloth) Less developed country: 1 wheat for 1 cloth Developed country: 1 wheat for 1 cloth

    5. Production possibilities for two countries Pre-trade exchange ratios Less developed country: 2 wheat for 1 cloth Developed country: 1 wheat for 2 cloth International trade exchange ratios (LDC exports wheat: DC exports cloth) Less developed country: 1 wheat for 1 cloth Developed country: 1 wheat for 1 cloth

    6. Production possibilities for two countries Pre-trade exchange ratios Less developed country: 2 wheat for 1 cloth Developed country: 1 wheat for 2 cloth International trade exchange ratios (LDC exports wheat: DC exports cloth) Less developed country: 1 wheat for 1 cloth Developed country: 1 wheat for 1 cloth

    7. The Gains from Trade • The limits to specialisation and trade • The terms of trade • PX/PM • Other reasons for gains from trade • decreasing costs • differences in demand • increased competition • trade as an ‘engine of growth’ • non-economic advantages