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1、Chapter 5,Economies of Scale, Imperfect Competition, and International Trade,New International Trade Theory,Chapter 5,2,Complementary Theories for H-O Theory,Economies of ScaleImperfect CompetitionDifferences in Dynamic Changes in Technology among NationsTransportation Costs and Environmental Standa
2、rds,Practical Basis of Todays International Trade,New International Trade Theory,Chapter 5,3,Outline,H-O Model and New Trade TheoriesEconomies of Scale and International TradeImperfect Competition and International TradeTrade Based on Dynamic Technological DifferencesCosts of Transportation, Environ
3、mental Standards and International Trade,Chapter 5,4,5.1 The H-O Model and New Trade Theories,1. There are two nations (Nation 1 and 2), two commodities (commodity X and Y), and two factors of production (labor and capital).2. Both nations use the same technology in production.,Relaxing assumptions
4、of H-O model and NTT,Technology gap and product cycle model,Chapter 5,5,Relaxing Assumptions,3. Commodity X is labor intensive and commodity Y is capital intensive in both nations.4. Both commodities are produced under constant returns to scale in both nations.,No factor-intensity reversal,Economies
5、 of scale and international trade,Chapter 5,6,Relaxing Assumptions,5. There is incomplete specialization in production in both nations.6. Tastes are equal in both nations.7. There is perfect competition in both commodities and factor markets in both nations., The theory of intra-industry trade,Chapt
6、er 5,7,Relaxing Assumptions,8. There is perfect factor mobility within each nation ( Internal factor mobility) but no international factor mobility.9. There are no transportation costs, tariffs, or other obstructions to the free flow of international trade.,Only modify H-O theory (reduce the volume
7、and benefits of international trade),Chapter 5,8,Relaxing Assumptions,10. All resources are fully employed in both nations.11. International trade between the two nations is balanced.,If unutilized the H-O theory could incorrectly predict the pattern of trade,Chapter 5,9,Conclusions,Relaxing most as
8、sumptions only modifies but does not invalidate the H-O theoryInternational trade that H-O theory leaves unexplained calls for new theories,Chapter 5,10,5.2 Economies of Scale and International Trade,Definition Increasing Returns to ScaleIllustrationFurther ExplanationsExternal Economies,Chapter 5,1
9、1,5.2.1 Definition,Increasing Returns to Scale refers to the production situation where output grows proportionately more than the increase in inputs or factors of production. Economies of Scale If all inputs are doubled, output is more than doubled.,Why?,Chapter 5,12,Explanation for Economies of Sc
10、ale,At a larger scale of operationEach worker can specialize in performing a simple repetitive taskIntroduction of more specialized and productive machinery,Whats the figure of production frontier?,Convex from the origin,FIGURE 5-1 Mutually Beneficial Trade Based on Economies of Scale.,5.2.2 Illustr
11、ation (P169),Assumption: two nations are identical in every respect,A : Equilibrium point in both nations in Autarky PA : No-trade equilibrium-relative commodity price in both nations B and B : Points of complete specialization in nation 1 and nation 2 E : Point of final consumption in both nations
12、(Both gain 20X and 20 Y),60X 60Y,(same supply and demand),Chapter 5,14,5.2.3 Further Explanation,The Pattern of specialization is not absolute and may result from historical accidentWith economies of scale the two nations need not be identical in every respectIf economies of scale persist over a suf
13、ficiently long range of outputs, monopoly or oligopoly will occurInternational Economies of Scale See Case Study 6-1 (P170),Chapter 5,15,Key Terms,MonopolyOligopoly,A single producer of a commodity for which there is no substitute,A few producer of a homogeneous or differentiated product,Chapter 5,1
14、6,5.2.4 External Economies,External Economies refer to the reduction in each firms average costs of production as the entire industry output expandsEconomies of Scale refer to the reduction in the average costs of production as the firms output expands,A Different Term from Economies of Scale,Hypoth
15、esis about Economies of Scale,S. B. Linder An Essay on Trade and Transformation (1961) Opinions of Preference Similarity or Overlapping Demands Hypothesis A nation should export those manufactured products for which a large domestic market exists and import those products that appeal to its low- and
16、 high-income minorities.Conclusion Trade in manufactures is likely to be largest among countries with similar tastes and income levels.,Chapter 5,18,5.3 Imperfect Competition and International Trade,Trade Based on Product DifferentiationMeasuring Intra-Industry TradeFormal Model of Intra-Industry Tr
17、adeAnother Version of the Model,Chapter 5,19,5.3.1 Trade Based on Product Differentiation,Intra-Industry trade,Homogeneous Products,Differentiated Products,Inter-Industry trade,See Case Study 6-2 (P172),Take advantage of economies of scale in production to keep unit costs low and benefit consumers w
18、ith more choices,Intra-industry trade model,Chapter 5,20,Interesting Considerations,1.Comparing with the H-O Theory,The H-O theory predict that trade based on comparative advantage is likely to be larger when the difference in factor endowments among nations greaterIntra-industry trade is likely to
19、be larger among industrial economies of similar size and factor proportions.,Difference 1:Basis for Trade,Chapter 5,21,Interesting Considerations,1.Comparing with the H-O Theory,The H-O model predicts that inter-industry trade will lower the return of the nations scarce factorWith intra-industry tra
20、de based on economies of scale it is possible for all factors to gain,Difference 2:Gains from Trade,Different Attitude of Interest Groups,Chapter 5,22,Interesting Considerations,1.Comparing with the H-O Theory,Intra-industry trade is related to the sharp increase in international trade in parts or c
21、omponents of a productIt utilizes each nations comparative advantage to minimize total costs,Relation,The intra-industry trade model is an extension of the basis H-O model to modern production conditions,Chapter 5,23,Interesting Considerations,2. About Relative Commodity Prices,With differentiated p
22、roducts produced under economies of scale, pre-trade-relative commodity prices may no longer accurately predict the pattern of trade.,Large Country & Small Country,Chapter 5,24,Conclusions,The comparative advantage determines the pattern of inter-industry trade, while economies of scale in different
23、iated products give rise to intra-industry tradeA great deal of intra-industry trade is in fact consistent with trade based on differences in factor endowments and comparative costsInter-industry trade reflects natural comparative advantage while inter-industry trade reflects acquired comparative ad
24、vantage,Chapter 5,25,5.3.2 Measuring Intra-Industry Trade,T = 1 (0，1),X: The value of exports of a particular industry or commodity group M: The value of imports of a particular industry or commodity group,Intra-Industry trade Index,XM,XM,T=0 when there is no intra-industry tradeT=1 when the exports
25、 and imports of a good are equal (intra-industry trade is maximum),See Case Study 6-3 (P175),How to define the industry?,Chapter 5,26,5.3.3 Formal Model of Intra-Industry Trade,With Intra-Industry Trade Differentiated Products Economies of Scale,Monopolistic Competition,Production and pricing under
26、monopolistic competition,Model,Market Organization,Chapter 5,27,Definition Monopolistic Competition,A form of market organization where there are many firms selling a differentiated product and entry into or exit from the industry is easy,FIGURE 5-2 Production and Pricing Under Monopolistic Competit
27、ion.,(Fairly Elastic),AC is downward sloping because of the economies of scaleThe firm reachs the best level of output where MR=MCThe firm breaks even at point A,See P176,Chapter 5,29,Conclusions Relationship between the two patterns of trade,When products are homogeneous, we have only inter-industr
28、y tradeWhen products are differentiated, we have both inter- and intra-industry tradeThe more similar nations are in factors endowments and technology, the smaller is the importance of inter-relative to intra-industry trade,5.3.4 Another Version of the Model P177,FIGURE 5-3 Monopolistic Competition
29、and Intra-Industry Trade.,Negative relationship between N and P because of competition,Positive relationship between N and AC for a given level of industry output,E : Long-run equilibrium point where each firm breaks even in Autarky E : New long-run equilibrium point with international trade,After T
30、rade (economies of Scale),Chapter 5,31,5.4 Trade Based on Dynamic Technological Differences Dynamic Extension of H-O Model,Technological Gap ModelProduct Cycle ModelIllustration,Chapter 5,32,Technological Gap Model M.V Posner (1961),Opinion A great deal of the trade among industrialized countries is
31、 based on the introduction of new products and new production processes. These give the innovating firm and nation a temporary monopoly in the world market that is often based on patents and copyrights, which are granted to stimulate the flow of inventions. Shortcomings No explanation of the size an
32、d the reason of the gaps, and how they are eliminated over time,Emphasize the time lag in the imitation process,Chapter 5,33,Product cycle mode Vernon(1966),When a new product is introduced, it usually requires highly skilled labor to produce As the product matures and acquires mass acceptance, it b
33、ecomes standardized and can then be produced by mass production techniques and less skilled labor Comparative advantage in the product shifts from the advanced nation that originally introduced it to less advanced nations, where labor is relatively cheaper This may be accompanied by foreign direct i
34、nvestments from the innovating nation to nations with cheaper labor.,Chapter 5,34,Conclusions for Product Cycle Model,Emphasize the standardization processThe most highly industrialized economies are expected to export non-standardized products embodying new and more advanced technologies and import
35、 products embodying old or less advanced technologies.It explains dynamic comparative advantage for new products and new production processes.,Chapter 5,35,Illustration of the product Cycle Model,FIGURE 5-4 The Product Cycle Model.,New-product phase,Product-growth phase,Product-maturity phase (Brand
36、 Competition),Product-decline phase (Price Competition),Case Study 6-4 (P182),5.5 Costs of Transportation, Environmental Standards and International Trade,Transportation CostsEnvironmental Standards,Definition, Effect on Industry Location and International trade,Chapter 5,37,5.5.1 Transportation Cos
37、ts,Definition Transportation Costs include all the costs of transferring goods from one location (nation) to anotherFreight chargesCosts of loading and unloadingWarehousing costsInsurance premiumsInterest charges while goods are in transit,Non-traded Goods and Services,Transport costs exceed price d
38、ifferences across nations,Case Study 6-5 (P184),Chapter 5,38,FIGURE 6-5 Partial Equilibrium Analysis of Transport Costs.,E : Equilibrium point for both nations in Autarky In absence of transport costs : PX =$8 in both nations, 60X are traded With transport costs of $2 per unit : PX1 =$7, PX2 =$9, 40
39、X are traded,Illustration P185,Chapter 5,39,Transportation costs and the Location of Industry,Resource-oriented industries : tend to locate near the source of the raw materials used by the industry Involving substantial weight losses in processingMarket-oriented industries : locate near the markets
40、for the products of the industry. Involving substantial weight gains in processingFootloose industries : tend to have high value-to-weight ratios and to be highly mobile or footloose. Involving neither substantial weight gains nor losses in processing,Chapter 5,40,5.5.2 Environmental Standards,Envir
41、onmental Standards refer to the levels of air pollution, water pollution, thermal pollution, and pollutions resulting from garbage disposal that a nation allows. Environmental Pollution is not fully reflected as social environmental costs in production,A nation with lower environmental standards can
42、 use the environment as a resource endowment or a factor of production in attracting polluting firms and achieving a comparative advantage in polluting goods and services.,How to deal with the contradiction between environment and development?,Sustainable Development,Case Study 6-7 (P188),Chapter 5,42,Problems,P190Problem 4,6,10,14,
