Book contents
- Frontmatter
- Contents
- Preface
- PART ONE INTRODUCTION
- PART TWO INTERNATIONAL TRADE THEORY AND POLICY
- 2 Comparative Advantage and the Gains from Trade
- 3 Economic Efficiency and Comparative Advantage
- 4 Factor Endowments and Comparative Advantage
- 5 Factor Substitutiton and a Modified Ricardian Model
- 6 Factor Substitution and the Heckscher–Ohlin Model
- 7 Imperfect Competition and International Trade
- 8 Trade and Factor Movements
- 9 Instruments and Uses of Trade Policy
- 10 The Evolution of Trade Policy
- 11 The Future of the Trading System
- PART THREE INTERNATIONAL MONETARY THEORY AND POLICY
- Appendix A Mathematical Notes on Trade Theory and Policy
- Appendix B Mathematical Notes on Monetary Theory and Policy
- Appendix C Outlines of Answers to Selected Problems
- List of Abbreviations
- Index
2 - Comparative Advantage and the Gains from Trade
Published online by Cambridge University Press: 05 June 2012
- Frontmatter
- Contents
- Preface
- PART ONE INTRODUCTION
- PART TWO INTERNATIONAL TRADE THEORY AND POLICY
- 2 Comparative Advantage and the Gains from Trade
- 3 Economic Efficiency and Comparative Advantage
- 4 Factor Endowments and Comparative Advantage
- 5 Factor Substitutiton and a Modified Ricardian Model
- 6 Factor Substitution and the Heckscher–Ohlin Model
- 7 Imperfect Competition and International Trade
- 8 Trade and Factor Movements
- 9 Instruments and Uses of Trade Policy
- 10 The Evolution of Trade Policy
- 11 The Future of the Trading System
- PART THREE INTERNATIONAL MONETARY THEORY AND POLICY
- Appendix A Mathematical Notes on Trade Theory and Policy
- Appendix B Mathematical Notes on Monetary Theory and Policy
- Appendix C Outlines of Answers to Selected Problems
- List of Abbreviations
- Index
Summary
THE ISSUES
This chapter introduces the main methods of trade theory and uses them to study three basic issues:
Why countries trade and how they gain from trade.
How trade affects the allocation of domestic resources in each trading country.
How tariffs and other trade barriers affect the gains from trade and modify the allocation of resources.
The chapter begins by using demand and supply curves to analyze the principal effects of trade, then introduces more powerful techniques.
PRICES AND TRADE PATTERNS
Differences in prices from country to country are the basic cause of trade. They reflect differences in costs of production. Trade serves in turn to minimize the real resource costs of worldwide production, which is the same as saying that trade serves to maximize the real value of production by allocating worldwide resources most efficiently. It does so by permitting and encouraging producers in each trading country to specialize in those economic activities that make the best use of their country's physical and human resources.
Why should costs differ from country to country? How can Japan produce cars, cameras, and computers more cheaply than the United States? Many people would reply that Japan has lower costs because it has lower wage rates, and wages are important costs. This explanation sounds plausible enough, but it is inadequate. If wage rates were decisive for cost differences and trade, Japan would undersell the United States in every product line and market.
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- Information
- The International Economy , pp. 19 - 44Publisher: Cambridge University PressPrint publication year: 2000