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Poli 243- Feb 6th.doc

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Political Science
POLI 243
Mark Brawley

POLI 243 February 6, 2013 Lecture # 12 ThePoliticsofTrade:FromInternationalRelationstoInternationalPoliticalEconomy -TheLogicBehindTrade: Why Trade takes place. -Comparative Advantage( Kevin Smith, Ricardo- developed logic) Definition: “ An actors ability to produce a good or service more efficiently than another actors ability to do so” ex: Middle pins to demonstrate how efficiency was used. stages of production. Individuals attempting to do all the stages on their own, when they should divide the tasks. The consequence: specialization. -ASimpleExampleofComparativeAdvantage:(Ricardo) Ex simplest: two countries, producing two goods. 1)In Isolation, Country A can: Produce a maximum of either -Industrial output(textiles): 300 units -Agricultural output(wine): 150 units The price of goods prior to trade: 300/150 or 2/1 ( 2 units of textiles= 1 unit of wine) 2)In Isolation, Country B can: Produce a maximum of either: -Industrial output( textiles): 80 units -Agricultural output (Textiles): 240 units The Price of goods prior to trade: 240/80 or 1/3 ( 1 unit of textiles= 3 units of wine) Domestic prices in the two countries, differ, therefore this is what drives trade. -GainsfromTrade: Compare the Domestic Prices: In Country A: 1 unit of wine costs 2 units of textiles. In Country B: 1 unit of wine costs 1/3 a unit of textiles. If they can, A should trade textiles for B’s wine. if each specializes, the total production possible is: 300 units of textiles 240 units of wine Note, this is the highest possible consumption. -UsingComparativeAdvantage The Heckscher-Ohlin( H-O) model -Based on the endowments of the factors of production -Factors are inputs used to make goods ( such as capital and labor) Look at Ratio capital to labor -The H-O model helps explain trade patterns. -QuestionsconcerningtheEconomicsofTrade -Explaining intra-good trade ( industrial countries trading with each other, other factors that ar
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