POLI 243 Lecture Notes - International Political Economy

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The Politics of Trade:
From International Relations to International Political
Economy 4/3/12 11:00 PM
Think about comparing levels of analysis: different arguments, systems,
policy options, information required
US relations with Iraq
American-Chinese relations 40 years from now
The Logic Behind Trade
Why do we worry about trade in the first place?
Themes: Economics tells us trade is really good.
Comparative Advantage
o Adam Smith: The Wealth of Nations
o An actor’s ability to produce a good or service more efficiently
than another actor’s ability to do so
o the conclusion: specialization
A Simple Example of Comparative Advantage
In isolation, Country A can:
o Produce a maximum of either
! 300 units of textiles
! 150 units of wine
o The price of goods prior to trade
! 2 units of textiles = 1 unit of wine
In isolation, Country B can:
o Produce a maximum of either
! 80 units of textiles
! 240 units of wine
o The Price of goods prior to trade
! 1 unit of textiles= 3 units of wine
Key idea: who is the most efficient at producing certain goods
The Gains from Trade
Compare the domestic prices:
o In country A, 1 unit of wine costs 2 units of textiles
o IN country B, 1 unit of wine costs 1/3 unit of textiles
o If they can, A should trade textiles for B's wine
o If each specializes, the total production possible is
! 300 units of textiles
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