Welcome to EC 382: International Economics By: Dr' Jacqueline Khorassani

1
Welcome to EC 382 International EconomicsBy
Dr. Jacqueline Khorassani

• Study Guide
• Week Two
• (Note You must go over these slides and complete
  every task outlined here before Wednesday,
  September 12)

2
Chapter 2 continued (Make sure to send me your
questions.)

• David Ricardo (1772(Netherlands)-1823)
• What was his major contribution?
• How is comparative advantage different from
  absolute advantage?
• Can a nation have comparative advantage but
  absolute disadvantage in production of good A?
  If so, how? If not, why not?

3
Production Possibilities Frontier

• What is it?
• How does it look graphically?
• Slope
• What does it measure?
• How does it related to opportunity cost?
• Under constant cost
• How does the related supply curve look and why?
• Under increasing cost
• How does the related supply curve look and why?
• What if we produce inside PPF?
• Can we produce outside PPF?
• Can PPF shift? If so, what causes it to shift?
• What is the difference between the production
  point and consumption point in the absence of
  trade?

4
Comparative Advantage

• What is it?
• How is it different from absolute advantage?
• Can a nation have both comparative and absolute
  advantages? Give a numerical example.
• Can a nation have comparative advantage but not
  absolute advantage? Give an example.

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International Trade Under Constant Cost Assumption

• How is it based on the absolute advantage?
• Who trades what?
• Who specializes in production of what?
• How is the terms of trade determined?
• How does it affect the world production?
• How does it affect the world consumption?
• How does it affect each countrys production and
  consumption?
• How can we show the gains from trade in each
  nation?

6
International Trade Under Constant Cost Assumption

• How is it based on the comparative advantage?
• Who trades what?
• Who specializes in production of what?
• How is the terms of trade determined?
• How does it affect the world production?
• How does it affect the world consumption?
• How does it affect each countrys production and
  consumption?
• How can we show the gains from trade in each
  nation?

7
International Trade Under Increasing Cost
Assumption

• What are the causes of increasing cost?
• How does the PPF look?
• How does the supply curve look?
• Is complete specialization likely?
• How is the terms of trade determined?
• How does it affect the world production
  consumption?
• How does it affect each countrys production and
  consumption?
• How can we show the gains from trade in each
  nation?

8

• How are the dynamic gains from trade different
  from the static gains from trade?

9
Chapter 3 The Factor-Proportions Theory (Send me
your questions.)

• What does the theory try to do?
• What are its assumption?
• What are its conclusions?

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The Factor-Proportions Theory

• What does the theory try to do?
• What are its assumption?
• What are its conclusions?

11
Factor-Price Equalization

• What does the theory try to do?
• What are its assumption?
• What are its conclusions?
• What is the Stolper-Samuelson Theorem?

12
The Specific-Factors Model

• What does the model try to do?
• What are its assumption?
• What are its conclusions?