ECO230Y1 Chapter Notes - Chapter 1: Factor Endowment, Imperfect Competition
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September 9th, 2013
Trade models also tend
to change over time.
Countries trade because:
- of differences in labor
- Difference in
- Different factor
- Difference in short run
fixity of factor
- Economies of scale
- Difference in tate
- Imperfect competition
there were two waves of
- 1840 – 1914
- 1945 – present
out of everything that is
goods is what dominates.
First part is focused on trade. Who benefits from trade, and who loses.
The second part is on exchange rate and how it affects other things.
As the nature of the trade is changing the economic theory has to adjust to
explain the trade. For example, why a certain country is trading this and not
Because trade has changed, trade models that were explaining things half a
century ago are not useful anymore.
Why countries trade?
- Differences in labor productivity. They are different. The whole idea is that
countries are different. What aspect matters for trade?
a. Differences in labor productivity. Labor forces in one country may be
good at producing certain things, while the other may be good in
producing another thing.
- Difference in technology. Countries have different technology standards.
- Difference in factor endowments. Fore example, some countries have an
abidance of oil.
- Difference in short run fixity of factor. In short run you cannot change your
factor. For example, in short run uoft cannot change the number of
buildings it has. Ti can however, fire or hire instructors.
- Difference in tastes. People have different tastes.
- Economies to scale (a larger scale is more efficient) it isn’t how too know to
produce things, but is it efficient to do so? Because it isn’t economical.
- Imperfect competition. For example, apple sued Samsung and now galaxy is
illegal in the United States.
- Each factor influences the pattern of trade and determines the destitution of
gain/losses between and within economies.
Change of trade pattern over time.
- There were two waves of globalization. We can define global opening as
- 1840-1914: due to seam power, railroads, telegraphs, telephones,
interrupted by world wars and depression. these causes the first round of
globalization. The great depression caused countries to fight another. This
interrupted the process of globalization
- 1945- present: economies rely on modern phones, airplanes, computers,
Internet, fibre options, GPS satellite.
- In fact, up to 1930, the whole world was much more open then today. For
example before you did not need visa to go anywhere. The world was much
Trade pattern and its components:
- What things are dominating our trade?
- Most of the trade is focused on manufacturing.
Share of manufacturing goods out of total trade of merchandise.
These days manufacturing goods are the most dominating part of trade. Sp far,
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