International Trade Theory and Policy,School of Economics, Yunnan University Zhang Jianhua and Zhang Lin,1,Chap. 1 Introduction,One. Course Outline Basic theory in Economics ( Analysis of commodity and factor mobility in open Macro economy by tools Microeconomics Contents: Pure Theory in International Trade ( Reason and Influence of International Trade) Policy of International Trade （Policies aiming at limiting imports while encouraging exports） Institutions for International Trade（WTO Institutions ）,2,Two Basic Concepts,balance of trade Trade Surplus（ExportsImports，Favorable Balance of Trade） Trade Deficit （ExportsImports，Unfavorable Balance of Trade） Trade Balance （Exports Imports） Trade Structure Commodity Structure Geographical Structure Dependency of Trade,2004、2005年 中国的贸易收支,2004年中国对外贸易依存度 接近70%,2005年中国主要进出口商品,3,Chap. 3 Comparative Cost and Classical Trade Theorem,In this chapter, we introduce theorem of international trade. We start such introduction looking at causes of international trade and its influences in the economy ( in Chap 3, 4, 5 and 6), then we will analyze the influences of economics in trade.,One, Theory of Absolute Cost,Theory of absolute cost It is a theoretical explanation to the cause of international trade Introduced by Adam Smith in his “ Wealth of Nations”,4,Graph of Absolute Cost,Each country produces goods absolutely low in cost, in exchange for other countries goods absolutely low in cost,Trade based on division of labor,Reason of trade is because of differences in absolute cost,Could countries have trade without absolute differences in cost?,5,Chap 3. 2. Comparative Cost,David Ricardo，1817 Background,谷物法,Cultivation of wheat expands, land of grass shrinks, and price of wool goes up,小麦价格上涨,Labor is more expansive,Food expend increases, end goods expend decreases,Revenge from other countries, export of end products decrease,损害了资产阶级的利益,要求自由贸易,6,Case of Ricardian Model,Assumptions： Two nations, two products, one factor, fixed productivity, sufficient employment, perfect competition, non-mobility of factor, barter, no technological improvement, no transportation cost,The absolute costs of both products in Britain is lower than that in Portugal, why is there still trade between these two countries,7,A necessary condition of international trade: Comparative cost difference,两利相权取其重，两弊相权取其轻,A sufficient condition of international trade: international exchange rate is between domestic exchange rates in both countries.,There is benefit from trade,Limitation：Why there is comparative cost,？,8,Chap3. 3. Classical trade model based on comparative cost,Used to explain：Reasons and influences of trade ( Price, Production, Consumption and Welfare.,1, Analysis Tools,1) Production Possibility Curve The maximum production when factors are fully employed.,A（0，100）,B（100，0）,O,X,Y,C（X1，Y1）,9,Property of Production Possibility Curve,Slope of PPC is equal to marginal opportunity cost,A,B,5,4,3,4,O,X,Y,The cost of giving up one benefit for getting another,Maximum cost may not be optimum production. We have to introduce indifference curve in order to get optimum production.,10,2, Indifference Curve,The different products combination that can bring same satisfaction to consumers.,O,X,Y,A（10，40）,B（25，15）,UA=UB,Property of Indifference Curve: There are many indifference curve Further from origin means more utility level Never cross with each other Concave Negative Slope,11,The combination of PPC and Indifference Curve: Equilibrium( Optimum ) Production and Consumption,O,X,Y,E,A,C,B,U0,U2,U1,ineffective,Impossible,Maximum production, but utility less than E,Equilibrium point： Maximum production, maximum utility,12,3, Exchange Rate ( Comparative price and Trade condition,O,Y,X,A,B,C,D,E,1X = 1Y,1X = 2Y,3X = 3Y,The exchange rate is equal to the slope of the line The key of exchange rate line is its slope, not the position. For example, AB and DE is in different position but has same slope,13,二、贸易前均衡,开展国际贸易前，一国国内的生产和消费状况,Y,X,O,B,A,T,生产可能性曲线 边际机会成本为1X = 1Y,交换比率线 交换比率为1X = 2Y,X产量扩大,X价格下跌，比如： 1X = 1.5Y,国内均衡时，生产可能性曲线与交换比率线重合，实现完全专业化生产,14,根据生产可能性曲线的斜率 判断一国的比较优势,Y,X,O,B,A,Y,X,O,B1,A1,A国,B国,1X = 1Y 相对于B国而言，X成本更低,1X = 3Y 相对于A国而言，X成本更高，Y成本更低,15,Three, Classical Trade Model ( One Factor ),Y,X,O,A,B,Y,X,O,C,D,T,T,1X = 1Y,1X = 3Y,Price of X falls in international market, and Price of Y also falls, finally reaches an equilibrium price, say, T(1X=2Y),National A,National B,16,Influence of International Trade,Y,X,O,A,B,Y,X,O,C,D,T,T,E,J,U0,U1,U0,U1,F,M,Price: X ( more comparative advantage ) raised,Production：Production of X expanded ( Perfect specialization ),Consumption: consumption combination is in higher-position indifference curve, better trade off,X in Nation A: Production OB, Consumption OX0, Surplus X0B( Export ) Y in Nation A: Production: 0, Consumption OY0 ( imports),X0,Y0,X in nation B Production 0, consumption OX1( Imports) Y