课件2.pptVIP

2. Free Trade and Protection Summary Theory of Comparative Advantage: Why trade is good. Where comparative advantage comes from: Heckscher-Ohlin Model (factor endowments) Equalization of factor income Welfare Effects of a Tariff : Consumers Lose Gov’t gains Local producers gain Arguments for protection: Optimal tariff Infant industry Employment Ricardo’s Theory of Comparative Advantage Suppose: Country A and Country B. Equally sized. Country A is better at producing both wine and wheat than B. Ricardo’s Theory of Comparative Advantage Suppose: Country A and Country B. Equally sized. Country A is better at producing both wine and wheat than B. Even then, both countries can benefit from trade. Ricardo’s Theory of Comparative Advantage Suppose: Country A and Country B. Equally sized. Country A is better at producing both wine and wheat than B. Even then, both countries can benefit from trade. Key is relative advantage. Ricardo’s Theory of Comparative Advantage Suppose: Country A and Country B. Equally sized. Country A is better at producing both wine and wheat than B. Even then, both countries can benefit from trade. Key is relative advantage. For example, assume A is relatively better at wheat production than wine. Before trade: Country A Before trade A produces a=wine and 120-2a=wheat. Before trade B ? Before trade B produces b=wine and 15-(b/4)=bread. ? Total world production is (a + b wine, 135 - 2a - 0.25b wheat). Now let trade occur Let B produce 1 more unit of wine (its comparative advantage) and therefore 0.25 less units of wheat. Now let trade occur Let B produce 1 more unit of wine (its comparative advantage) and therefore 0.25 less units of wheat. At the same time the A produces one less unit of wine and two more unit of wheat (its comparative advantage).? Now let trade occur Let B produce 1 more unit of wine (its comparative advantage) and therefore 0.25 less units of wheat. At the same time the A produces one less unit o