Class Notes (997,467)
CA (575,157)
McGill (35,033)
MGCR (717)
MGCR 382 (149)
Lecture 14

MGCR 382 Lecture 14: Trade Theory Part 2
24HR
Premium

6 Pages
324 Views
Fall 2015
Likes

Department
Management Core
Course Code
MGCR 382
Professor
Jan J Jorgensen, David S.Schumacher
Lecture
14

This preview shows pages 1-2. Sign up to view the full 6 pages of the document.
MGCR382Lecture14Tradetheorypart2
Continuationoflastweek’slecture
<Wine/radio<⅔
Thepastexamplewassimplified.Werarelyusebartertogetgoods,weusemoney.
Assume:
● Frenchwagerateperhouris12€
● Japanesewagerateperhouris1,000¥–1€isworth125¥
Atwhatexchangeratewouldfranceloseitsadvantageandwhy?
whenisthepriceofthejapanesebottle<3euros?
● 3euros>(1h*1000Y/H)/Eurorate
● Eurorate>333.3Y/H
Whatsthetheoryworth?
Pros:
● Promoteefficiency
● Simple,intuitive,powerful
○ theideacanbeexpandedtoincludemanygoodsorfrictions(tariffsetc…)
● Ithassomeempiricalvalidity
○ RatioofexportvalueratioUS/UKgainstproductivityratioUS/UK
IntheindustrieswheretheUSismoreproductivethantheUK,theUSexportsmorethan
imports.
Isitabsoluteadvantagethatdrivesthetradeorcomparativeadvantage?
● TheUSismoreproductiveeverywhereanditsstilltradingthetheUK,soitsa
comparativeadvantagethatdrivesthetrade.Ifithadanabsoluteadvantage,itwouldn’t
tradewiththeUKatall.
Cons:
● Extremepredictioninspecialization(acountrydoesn’tjustproduceonetypeofgoods).
● thereisaproductdifferentiationintherealworld(afrenchbottleofwineisn’tthesame
asajapanesebottleofwine)
● Excludemanydifferentfactors(eg:politics)
● ignoresmanyaspectsofreality
○ silentontheeffectoftradeonincomedistributionwithincountries.
● Silentonhowyouactuallygetacomparativeadvantage
Tradepatternsandchallenges
Whotradeswithwhom?
● Closeneighbourtrademorethanlongdistanceneighbours(duetotransportationcosts)
● Thesizeofthetwoeconomies(biggerisbetter).
Thisiscalledthe“gravitymodeloftrade”(whentwothingsarebigger,theyattracteachother
morejustlikethephysicallaws).

Loved by over 2.2 million students

Over 90% improved by at least one letter grade.

Leah — University of Toronto

OneClass has been such a huge help in my studies at UofT especially since I am a transfer student. OneClass is the study buddy I never had before and definitely gives me the extra push to get from a B to an A!

Leah — University of Toronto
Saarim — University of Michigan

Balancing social life With academics can be difficult, that is why I'm so glad that OneClass is out there where I can find the top notes for all of my classes. Now I can be the all-star student I want to be.

Saarim — University of Michigan
Jenna — University of Wisconsin

As a college student living on a college budget, I love how easy it is to earn gift cards just by submitting my notes.

Jenna — University of Wisconsin
Anne — University of California

OneClass has allowed me to catch up with my most difficult course! #lifesaver

Anne — University of California
Description
MGCR382 Lecture 14 Trade theory part 2 Continuation of last weeks lecture < Wineradio < The past example was simplified. We rarely use barter to get goods, we use money. Assume: French wage rate per hour is 12 Japanese wage rate per hour is 1,000 1 is worth 125 At what exchange rate would france lose its advantage and why ? when is the price of the japanese bottle <3 euros ? 3 euros > (1h*1000 YH)Euro rate Euro rate > 333.3 YH What s the theory worth ? Pros: Promote efficiency Simple, intuitive, powerful the idea can be expanded to include many goods or frictions (tariffs etc) It has some empirical validity Ratio of export value ratio USUK gainst productivity ratio USUK
More Less
Unlock Document

Only pages 1-2 are available for preview. Some parts have been intentionally blurred.

Unlock Document
You're Reading a Preview

Unlock to view full version

Unlock Document

You've reached the limit of 4 previews this month

Create an account for unlimited previews.

Already have an account?

Log In


OR

Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit