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International Trade Relations

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As an international economist you have been asked to prepare a short speech which answers the following questions:

1.How does the Heckscher-Ohlin theory differ from Ricardian theory in explaining international trade patterns?

2.The theory demonstrates how trade affects the distribution of income within trading partners. Explain.

3.How does the Leontief paradox challenge the overall applicability of the factor-endowment model?

4.According to Staffan Linder, there are two explanations of international trade patternsâ?"one for manufacturers and another for primary (agricultural) goods. Explain.

Following that speech, the audience asks you to respond to the following question:

Describe a specific tariff, an ad valorem tariff, and a compound tariff. What are the advantages and disadvantages of each?

Objective:

â?¢Explain the macroeconomic and microeconomic concepts and how they relate to the management of a global organization.

â?¢Critically analyze and evaluate real-life economic problems and opportunities by applying economic concepts, principles, and theory.

â?¢Examine the functions, opportunities, and challenges of the international monetary system.

â?¢Use effective communication techniques.

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Solution Preview

As an international economist you have been asked to prepare a short speech which answers the following questions:

1.How does the Heckscher-Ohlin theory differ from Ricardian theory in explaining international trade patterns?
The Heckscher-Ohlin theory predicts outline of commerce and productions based on the factor endowments of a trading region. According to the Heckscher-Ohlin theory, countries will export products that use their abundant and cheap factors of production and import products that use the countries scarce factors. The Ricardian theory concentrates on comparative advantage. That means a country will specialize in making what they produce the best. The Ricardian theory predicts that countries will specialize instead of producing a broad array of goods. The Ricardian theory does not concentrate on relative amounts of labor and capital within the country. The Ricardian theory instead assumes technological differences among countries.

An important difference between the Heckscher-Ohlin and the Ricardian model is that the Ricardian model assumes one factor of production namely labor but the Heckscher-Ohlin model assumes two factors of production namely capital and labor. However, the Heckscher-Ohlin assumes that capital cannot move from one country to another. However, the Ricardian theory captures the mobility of capital. further, the Ricardian theory is now extended in general form that not only includes labor as a factor of production but also inputs of materials and intermediate goods.

2.The theory ...

Solution Summary

International Trade Relations is discussed very comprehensively in this explanation..

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