Reading Notes: International Economics (2)

1. Factors that determine who trades with whom:1) GDP; Of two countries; 2) The distance between the two countries.

2. Gravity model: Other things being equal, the trade between the two countries is directly proportional to the gross domestic product of the two countries and inversely proportional to the distance between the two countries.

3. A counterexample of gravity model application: 1) Cultural affinity (millions of Americans are descendants of Irish immigrants); 2) Geographical location and transportation cost (for example, the Netherlands and Belgium are both located at the exit of the Rhine, the longest river in Europe).

4. Trade barriers: distance (the trade volume between the two countries will decrease by 0.7-1% every time the distance between the two countries increases), barriers (effective trade agreements) and borders (relatively independent national currencies).

5. Evolving world trade pattern: 1) The negative impact of distance on international trade is weakened, and the progress of transportation and communication makes the earth smaller; 2) The power of politics can surpass the role of technological progress; 3) From a global perspective, countries mainly exchange manufactured goods; The growth of manufactured goods exports in the third world; 5) A new trade form: service outsourcing.

Chapter III: Labor Productivity and Comparative Advantage-ricardian model

1. Opportunity cost: the quantity of B that can be produced by producing a certain amount of resources.

2. The reason why international trade can increase world output: It allows each country to specialize in producing its own products with comparative advantages.

3. Comparative advantage: If the opportunity cost of producing a product in a country is lower than that in other countries, then this country has a comparative advantage in producing this product.

4. ricardian model: The difference of international labor productivity is the only determinant of international trade.

5. production possibility frontier: Different product combinations that a country can produce.

6. In a competitive economy, supply depends on the efforts of producers to maximize their income.

7. When the relative price of a country is higher than its opportunity cost, the country specializes in producing A; When the relative price of A is lower than its opportunity cost, the country specializes in producing B.

8. In the absence of international trade, the relative price of products is equal to the relative labor income of unit products.

9. Absolute advantage: When a country can produce the same unit of goods with less labor input than other countries, we say that this country has absolute advantage in producing this kind of goods.

10. It is impossible to determine the trade pattern only by absolute advantage. In the study of international trade, one of the most important sources of errors is the confusion between absolute advantage and comparative advantage.

1 1. Commodity prices in international trade, like other commodities, are determined by the relationship between supply and demand. The relative price of one traded product to another is kept between the relative prices of two trading countries.

12. Demonstration method of trade income: 1) Regard trade as an indirect mode of production; 2) Study how trade affects the consumption possibility of the two countries.

13. The relative wage of workers in a country refers to the ratio of the hourly wage of workers in that country to that of foreign workers.

14. When the ratio of domestic and foreign wage rates rises, the relative demand for domestic labor will decrease. Reason: 1) Because the price of domestic labor is higher than that of foreign labor, the price of domestic products will be relatively more expensive, and the demand for these products in the world market will decrease; 2) After domestic wages rise, the types of products produced in China will decrease, and the types of products produced abroad will increase, which further reduces the demand for domestic labor.

15. In the actual international economy, the specialized division of labor will not be too extreme. Reason: 1) The existence of various factors in production will weaken the trend of specialized division of labor; 2) The state should protect national industries from foreign competition; 3) Due to the high transportation cost of products and services, some countries have to achieve self-sufficiency in some industrial sectors.

16. Limitations of ricardian model: 1) Simple ricardian model predicted an extreme specialization, which does not exist in the real world; 2) ricardian model ignores the influence of international trade on domestic income distribution; 3) ricardian model ignores that the difference of resources between countries is also a reason for trade; 4) ricardian model ignores that economies of scale may also be the cause of international trade, which makes it impossible to explain the large amount of trade between obviously similar countries.