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Chapter 4

Trade: Factor Availability and Factor Proportions Are Key

Trade: Factor Availability and Factor Proportions Are Key This chapter continues the analysis of international trade in a two-product economy. It picks up from the end of Chapter 3, where it was noted that the assumption of constant marginal cost and the implication that countries will completely specialize in producing only one (or a few) product(s) are unrealistic. In the modern theory of international trade, we use the assumption of increasing marginal costs—as one industry expands at the expense of others, increasing amounts of other goods must be given up to obtain each extra unit of the expanding output.

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Slide29
知识点8
案例4
习题60

Knowledge Points

知识点

manual

Production with Increasing Marginal Costs

This chapter continues the analysis of international trade in a two-product economy. It picks up from the end of Chapter 3, where it was noted that the assumption of constant marginal cost and the implication that countries will completely specialize in producing only one (or a few) product(s) are unrealistic. In the modern theory of international trade, we use the assumption of increasing marginal costs—as one industry expands at the expense of others, increasing amounts of other goods must be given up to obtain each extra unit of the expanding output.

  • Increasing marginal costs
  • : As one industry expands at the expense of others, increasing amounts of the other products must be given up to get each extra unit of the expanding industry’s product.
  • A country’s
manual

Production and Consumption Together

Putting the production possibility curve together with the community indifference curves results in a picture of an entire (two-product) economy. The chapter shows the equilibrium with no trade (a tangency of a community indifference curve with the production possibility curve). It then shows two countries whose no-trade price ratios differ.

  • Without trade,
  • the U.S. must be self-sufficient and find the combination of domestically produced wheat and cloth that will maximize community well-being.
  • With trade,
manual

Trade Affects Production and Consumption

Putting the production possibility curve together with the community indifference curves results in a picture of an entire (two-product) economy. The chapter shows the equilibrium with no trade (a tangency of a community indifference curve with the production possibility curve). It then shows two countries whose no-trade price ratios differ.

  • Trade allows both countries to reach a higher level of economic well-being than before trade.
  • A country’s gain depends on the price ratios before trade (autarky price) and after trade.
  • Trade affects both production and consumption patterns in both countries.
manual

The Heckscher-Ohlin Theory

The skewness of production possibility curves can arise because resource availability differs between countries and the use of these factors in producing differs between products. These differences in factor endowments and factor proportions lead to the Heckscher-Ohlin theory of trade patterns—countries export the products that use their abundant factors intensively (and import the products that use their scarce factors intensively).

  • The Heckscher-Ohlin theory of trade predicts that a country exports product (or products) that uses its relatively abundant factor(s) intensively and imports the product (or products) that uses its relatively scarce factor(s) intensively.
  • A country is relatively
  • labor-abundant
manual

Four Fundamental Questions About Trade

The chapter ends by returning to the first of the four key questions about trade—what determines the pattern of trade. While demand differences might explain some trade, most analysis focuses on production-side differences. If demand is neutral, then the trade pattern is determined by production-side differences that cause no-trade price ratios to differ.

  • 1. What is the basis for trade?
  • 2. What are the gains from trade?
  • 3. What are the effects of trade on production and consumption in each country?
manual

Production Possibilities under Increasing Costs

This chapter continues the analysis of international trade in a two-product economy. It picks up from the end of Chapter 3, where it was noted that the assumption of constant marginal cost and the implication that countries will completely specialize in producing only one (or a few) product(s) are unrealistic. In the modern theory of international trade, we use the assumption of increasing marginal costs—as one industry expands at the expense of others, increasing amounts of other goods must be given up to obtain each extra unit of the expanding output.

    manual

    What’s Behind the Bowed-Out Production- Possibility Curve?

    The chapter ends by returning to the first of the four key questions about trade—what determines the pattern of trade. While demand differences might explain some trade, most analysis focuses on production-side differences. If demand is neutral, then the trade pattern is determined by production-side differences that cause no-trade price ratios to differ.

    • Why are increasing-cost curves (bowed-out in shape) more realistic than constant-cost (straight-line) production-possibility curves?
    • A country’s ppc is derived from information on both total factor (resource) supplies and the production functions that indicate how factor inputs can be used to produce outputs in various industries.
    manual

    What’s Behind the Bowed-Out Production- Possibilities Curve?

    The chapter ends by returning to the first of the four key questions about trade—what determines the pattern of trade. While demand differences might explain some trade, most analysis focuses on production-side differences. If demand is neutral, then the trade pattern is determined by production-side differences that cause no-trade price ratios to differ.

    • The explanation for the realism of increasing costs (and the bowed-out shape):
    • There are several kinds of factor inputs (land, skilled labor, unskilled labor, capital, etc.).
    • Different products use factor inputs in different proportions.

    Cases

    案例与情境

    9.In Figure 4.4A, the shape of the U.S. production-possibility curve ske ...

    9.In Figure 4.4A, the shape of the U.S. production-possibility curve skews toward producing wheat, and the rest of the world production-possibility curve skews toward producing cloth. The Heckscher–Ohlin theory has a specific explanation for the skew. The United States has relatively a lot of the factor inputs (e.g., land) that are most important for producing wheat, so the United States is relatively strong at producing wheat.

    查看原始摘录

    9.In Figure 4.4A, the shape of the U.S. production-possibility curve skews toward producing wheat, and the rest of the world production-possibility curve skews toward producing cloth. The Heckscher–Ohlin theory has a specific explanation for the skew. The United States has relatively a lot of the factor inputs (e.g., land) that are most important for producing wheat, so the United States is relatively strong at producing wheat. The rest of the world has relatively a lot of the factor inputs (e.g., labor) that are most important for producing cloth, so the rest of the world is relatively strong at producing cloth.

    Putting the production possibility curve together with the community ind ...

    Putting the production possibility curve together with the community indifference curves results in a picture of an entire (two-product) economy. The chapter shows the equilibrium with no trade (a tangency of a community indifference curve with the production possibility curve). It then shows two countries whose no-trade price ratios differ.

    查看原始摘录

    Putting the production possibility curve together with the community indifference curves results in a picture of an entire (two-product) economy. The chapter shows the equilibrium with no trade (a tangency of a community indifference curve with the production possibility curve). It then shows two countries whose no-trade price ratios differ. When trade is opened between the two countries, an equilibrium international price ratio is established that clears the international markets for the two goods. Production in each country shifts to the tangency with the new price line (whose slope shows the equilibrium international price), and each country trades along the price line to a consumption point determined by a tangency between the price line and a community indifference curve. The right-angle triangle between the production point and the consumption point is a trade triangle showing expo

    The graph can be used to show that each country gains ...

    The graph can be used to show that each country gains from trade. Trade allows each country to consume beyond its ability to produce (shown by the production possibility curve). Trade allows each country to reach a higher community indifference curve. How much the country gains from trade depends on the country's terms of trade—the price of its exports relative to the price of its imports.

    查看原始摘录

    The graph can be used to show that each country gains from trade. Trade allows each country to consume beyond its ability to produce (shown by the production possibility curve). Trade allows each country to reach a higher community indifference curve. How much the country gains from trade depends on the country's terms of trade—the price of its exports relative to the price of its imports. The graph also shows the effects on the production and consumption quantities for each good in each country.

    The skewness of production possibility curves can arise because resource ...

    The skewness of production possibility curves can arise because resource availability differs between countries and the use of these factors in producing differs between products. These differences in factor endowments and factor proportions lead to the Heckscher-Ohlin theory of trade patterns—countries export the products that use their abundant factors intensively (and import the products that use their scarce factors intensively).

    查看原始摘录

    The skewness of production possibility curves can arise because resource availability differs between countries and the use of these factors in producing differs between products. These differences in factor endowments and factor proportions lead to the Heckscher-Ohlin theory of trade patterns—countries export the products that use their abundant factors intensively (and import the products that use their scarce factors intensively). With no trade the relatively abundant production factors will be relatively cheap, so that the product that uses these factors relatively intensively will have a low no-trade price. As trade is opened, this product is exported. Tips

    Exercises

    习题与答案

    题目 1Production with Increasing Marginal Costs

    In international trade jargon, constant-cost production-possibility curves are associated with ________ specialization, while increasing-cost production-possibility curves are associated with ________ specialization.

    • A) no; partial
    • B) complete; no
    • C) complete; partial
    • D) partial; complete

    正确答案：C | complete; partial

    难度：1 Easy Bloom's：Remember

    题目 2Production with Increasing Marginal Costs

    Which of the following statements is true about production-possibility curves?

    • A) Constant-cost production-possibility curves are straight lines and usually lead to complete specialization under free trade.
    • B) Under free trade, bowed-out production-possibility curves are associated with partial specialization, because the opportunity cost of producing each good is constant along the curve.
    • C) Increasing-cost production-possibility curves provide us with information about consumer preferences.
    • D) Constant-cost production-possibility curves are convex to the origin.

    正确答案：A | Constant-cost production-possibility curves are straight lines and usually lead to complete specialization under free trade.

    难度：1 Easy Bloom's：Remember

    题目 3Production with Increasing Marginal Costs

    Which of the following best explains why increasing marginal costs of production arise?

    • A) The factor endowments vary across countries.
    • B) All the factor inputs are not fully utilized in the production of different commodities.
    • C) Different consumers have different tastes and preference sets.
    • D) Different commodities use inputs in different proportions.

    正确答案：D | Different commodities use inputs in different proportions.

    难度：2 Medium Bloom's：Understand

    题目 4Production with Increasing Marginal Costs

    Assume that Country X produces two goods—sugar and shoes—and that the country's production possibility curve is "bowed-out." As the country produces more sugar the opportunity cost of sugar in terms of shoes foregone will

    • A) increase.
    • B) decrease.
    • C) initially increase and then decrease.
    • D) remain unchanged.

    正确答案：A | increase.

    难度：1 Easy Bloom's：Remember

    题目 5Production and Consumption Together

    Consider a two-country, two-commodity model. Each country has an increasing-cost production-possibility curve. In this model the amounts of the goods that are produced in a country in the no-trade situation are determined by:

    • A) the relative prices of the goods.
    • B) the factor endowments in the economy.
    • C) technology differences between the industries.
    • D) total income in the economy.

    正确答案：A | the relative prices of the goods.

    难度：1 Easy Bloom's：Remember

    题目 6Production with Increasing Marginal Costs

    In the figure below, AB is the production-possibility curve of Canada. I1 and I2 are two of the community indifference curves of Canada. In the absence of trade Canada will:

    • A) produce and consume at point S1.
    • B) produce and consume at point C0.
    • C) produce at point S1 and consume at point C0.
    • D) produce at point S1 and consume at point C1.

    正确答案：B | produce and consume at point C0.

    难度：3 Hard Bloom's：Analyze

    题目 7Production with Increasing Marginal Costs

    In the figure below, AB is the production-possibility curve of Canada. The line PQ shows the price ratio of one bushel of wheat/bale of cotton. The international price ratio is 0.25 bushels of wheat/bale of cotton as shown by the line RS. I1 and I2 are two of the community indifference curves of Canada. After Canada engages in free trade, it will:

    • A) produce at point S1 and consume at point C0.
    • B) produce and consume at point C0.
    • C) produce at point S1 and consume at point C1.
    • D) produce and consume points not labeled in the graph.

    正确答案：C | produce at point S1 and consume at point C1.

    难度：3 Hard Bloom's：Analyze

    题目 8Production with Increasing Marginal Costs

    In the following figure, AB is the production-possibility curve of Canada. The line PQ shows the price ratio of one bushel of wheat/bale of cotton. The international price ratio is 0.25 bushels of wheat/bale of cotton as shown by the line RS. I1 and I2 are two of the community indifference curves of Canada. Which of the following can be inferred from this figure?

    • A) Canada has a comparative advantage in the production of wheat.
    • B) Canada has a comparative advantage in the production of cotton.
    • C) Canada has an absolute disadvantage in the production of both goods.
    • D) Canada has an absolute advantage in the production of both goods.

    正确答案：A | Canada has a comparative advantage in the production of wheat.

    难度：3 Hard Bloom's：Analyze

    题目 9Production with Increasing Marginal Costs

    In the figure below, AB is the production-possibility curve of Canada. I1 and I2 are two of the community indifference curves of Canada. With free trade, the international price ratio is 0.25 bushel of wheat/bale of cotton, and Canada will export:

    • A) eighty bushels of wheat.
    • B) twenty bushels of wheat.
    • C) forty bales of cotton.
    • D) sixty bales of cotton.

    正确答案：B | twenty bushels of wheat.

    难度：3 Hard Bloom's：Apply

    题目 10Production with Increasing Marginal Costs

    In the figure below, AB is the production-possibility curve of Canada. I1 and I2 are two of the community indifference curves of Canada. With free trade, the international price ratio is 0.25 bushel of wheat/bale of cotton, and Canada will import:

    • A) sixty bales of cotton.
    • B) forty bales of cotton.
    • C) twenty bushels of wheat.
    • D) eighty bushels of wheat.

    正确答案：A | sixty bales of cotton.

    难度：3 Hard Bloom's：Apply

    题目 11Production with Increasing Marginal Costs

    In the figure below, AB is the production-possibility curve of Canada. The line PQ shows the price ratio of one bushel of wheat/bale of cotton. I1 and I2 are two of the community indifference curves of Canada. With free trade, Canada can achieve a level of well-being corresponding to I2. In the absence of international trade, one bushel of wheat will exchange for ________ bale(s) of cotton in Canada. After Canada engages in international trade, one bushel of wheat will exchange for ________ bale(s) of cotton.

    • A) one; 0.25
    • B) four; one
    • C) one; four
    • D) 65, 85

    正确答案：C | one; four

    难度：3 Hard Bloom's：Apply

    题目 12Production and Consumption Together

    The figure below shows the production-possibility curves of Canada (AB) and the rest of the world (CD). I1 and I2 are community indifference curves for Canada and the rest of the world. In the absence of trade, Canada consumes ________ bales of cotton and ________ bushels of wheat.

    • A) twenty; three
    • B) sixteen; six
    • C) twenty; six
    • D) twelve; eleven

    正确答案：B | sixteen; six

    难度：3 Hard Bloom's：Apply

    Manual Preview

    教师手册摘录

    Trade: Factor Availability and Factor Proportions Are Key

    This chapter continues the analysis of international trade in a two-product economy. It picks up from the end of Chapter 3, where it was noted that the assumption of constant marginal cost and the implication that countries will completely specialize in producing only one (or a few) product(s) are unrealistic. In the modern theory of international trade, we use the assumption of increasing marginal costs—as one industry expands at the expense of others, increasing amounts of other goods must be given up to obtain each extra unit of the expanding output. Increasing marginal cost results in a bowed-out production possibility curve. This is linked to upward-sloping supply curves for each product. Increasing marginal costs arise because some resources are better suited to producing one good rather than the other (including differences in factor input proportions between the two products—Appendix B shows this explicitly). The market price ratio determines which production point will actually be chosen. Production will be driven to levels at which the marginal (or opportunity) cost of producing another unit just equals the price at which the output can be sold. On the graph this is a tangency between the production possibility curve and the price line whose slope reflects the market price ratio.

    The second key analytical tool that we need is a way to picture demand for two products at the same time. For individuals this can be done using indifference curves and income or budget lines. The chapter reviews (or summarizes) the basics of indifference curves (levels of well-being or happiness or utility, bowed shape, infinite number of which only a few are usually pictured). It then indicates that we are going to use community indifference curves, even though there are serious questions about them. At the least, they are reasonable for depicting national demand patterns for two goods simultaneously. Under certain assumptions they also provide information on national well-being or welfare, but this use is more debatable.

    Putting the production possibility curve together with the community indifference curves results in a picture of an entire (two-product) economy. The chapter shows the equilibrium with no trade (a tangency of a community indifference curve with the production possibility curve). It then shows two countries whose no-trade price ratios differ. When trade is opened between the two countries, an equilibrium international price ratio is established that clears the international markets for the two goods. Production in each country shifts to the tangency with the new price line (whose slope shows the equilibrium international price), and each country trades along the price line to a consumption point determined by a tangency between the price line and a community indifference curve. The right-angle triangle between the production point and the consumption point is a trade triangle showing export and import quantities for each country. (The chapter also indicates how the graph can be used to derive a demand curve for cloth, so that the analysis is shown to be consistent with the supply-demand analysis from Chapter 2.)

    Slide Outline

    课件线索

    • Four Fundamental Questions About Trade
    • Production with Increasing Marginal Costs
    • Production Possibilities under Increasing Costs
    • What’s Behind the Bowed-Out Production- Possibility Curve?
    • What’s Behind the Bowed-Out Production- Possibilities Curve?
    • What Production Combination Is
    • Community Indifference Curves
    • Indifference Curves Relating an Individual’s Level of Well-Being to Consumption of Two Goods
    • Indifference Curves
    • Production and Consumption Together
    • Indifference Curves and Production Possibilities without Trade
    • Indifference Curves and Production Possibilities without Trade Long Description

    NextLab Bridge

    本章可联动的贸易分析实验

    Specific Factors Shock Lab

    将《Trade: Factor Availability and Factor Proportions Are Key》对应的理论或政策机制放到贸易分析实验室中做交互式验证。

    NextLab
    H-O Trade Direction Lab

    将《The Heckscher-Ohlin Theory》对应的理论或政策机制放到贸易分析实验室中做交互式验证。

    NextLab