Chapter 3:The Standard Theory of International Trade （国际贸易的标准理论) Key terms of this charpter Increasing opportunity cost Incomplete specialization Community indifference curve ■Autarky Equilibrium-relative commodity price in isolation Equilibrium-relative commodity price with trade ■Gains from exchange Gains from specialization
1 Chapter 3：The Standard Theory of International Trade （国际贸易的标准理论） Key terms of this charpter: Increasing opportunity cost Incomplete specialization Community indifference curve Autarky Equilibrium-relative commodity price in isolation Equilibrium-relative commodity price with trade Gains from exchange Gains from specialization
3.2 The Production Frontier with Increasing Costs Increasing opportunity Costs: the nation must give up more and more of one commodity to release just enough resources to produce each additional unit of another commodity. Property: negative slope concave from the origin 2
2 3.2 The Production Frontier with Increasing Costs Increasing opportunity Costs : the nation must give up more and more of one commodity to release just enough resources to produce each additional unit of another commodity. Property: negative slope concave from the origin
3.2A Illustration of Increasing Costs Y Nation 2 B Nation 1 140 △Y 120 100 80 60 △Y 40 △X 汤 01030507090110130 0 Production frontier of nation 1 and nation 2 with increasing costs Absolute slope of the production frontier at the point of production- Marginal Rate of Transformation(边际转换率) 3
3 Production frontier of nation 1 and nation 2 with increasing costs 3.2A Illustration of Increasing Costs -△ Y 0 10 30 50 70 90 110 130 Y Nation 1 X △ X A B 140 120 100 80 60 40 20 0 - △ X Y Nation 2 △ Y X A’ B’ Absolute slope of the production frontier at the point of production—— Marginal Rate of Transformation （边际转换率）
3.2C Reasons for Increasing Opportunity Costs and Different Production Frontier Reasons for Increasing Opportunity Costs: a)Resources or factors are not homogenous b)Resources or factors are not used in the same fixed proportion in the production of all commodities Reasons for Different Production Frontier: a)two nations have different factor endowments b)two nations use different technologies in production
4 3.2C Reasons for Increasing Opportunity Costs and Different Production Frontier Reasons for Increasing Opportunity Costs: a) Resources or factors are not homogenous b) Resources or factors are not used in the same fixed proportion in the production of all commodities Reasons for Different Production Frontier: a) two nations have different factor endowments b) two nations use different technologies in production
3.3 Community Indifference Curve Community Indifference Curve: the various combinations of two commodities that yield equal satisfaction to the community or nation. Property: ■negative slope convex from the origin ■not cross higher curve refers to higher level of satisfaction 5
5 3.3 Community Indifference Curve Community Indifference Curve: the various combinations of two commodities that yield equal satisfaction to the community or nation. Property: negative slope convex from the origin not cross higher curve refers to higher level of satisfaction