Theoretical analysis In 1930s Eli Heckscher and Bertil Ohlin developed the factor proportions theory which is also known as the Heckscher-Ohlin model. This theory holds that countries will produce and export products that use large amounts of production factors that they have in abundance, and they will import products requiring large amounts of production factors that they lack (Rugman&Collinson, 2009). The original H-O model is also called 2*2*2 model. Because it assumed that the only difference between countries was the relative abundances of labor and capital. The original H-O model contained two countries, and had two commodities that could be produced. For example, China has large amount of labor forces while America has large amount of capital. Under H-O theory, China will concentrate on producing labour-intensive goods and export to America, on contrast, America has relatively more capital than labour, will specialize in capital-intensive goods. There are many assumptions of the theory. Both countries in model have identical production technology. It assumes that the rates of availability of resources are same in different countries. What’s more, it assumes that the production output must have constant return to scale (CRS). In reality, the assumptions of the H-O model cannot be satisfied. In 1954, an econometric test by Wassily W. Leontief of the H-O model found that the US, despite having a relative abundance of capital, tended to export labour-intensive goods and import capital-intensive goods (wiki, 2012). This result is known as the Leontief paradox and has been explained in terms of the quality of labor input rather than just labor-hours of work. The two theories above explained the relationships between import a... ... middle of paper ... ...countries if the goods cannot meet the standards they set. Besides these, some other considerations may be counted. Employment, exchange rate, tariffs, quotas and other non-tariffs barriers may impact the comparativeness in one place. Tariffs are tax on goods that are shipped internationally. Government may set a high tariffs to protect dominate industry and employment. In recent years, solar energy becomes rising industry. America and China both want to export solar energy equipments. To protect local industry, America set a high tariff of import even a restriction of solar energy relative product import. Meanwhile, using the advantage of exchange rate and export duty refunds, China also encourages the local solar energy.These barriers impact the import and export action a lot. Not only has the availability of resources influenced the competitiveness in one place.
To reiterate, let’s construct another example of two companies that produce oranges. Company number one is located in Florida where it’s the perfect environment to produce oranges. Company number two however is located in Toronto, which to be fair, isn 't a suitable environment to produce natural oranges, unless of course they’re produced in a green house. Although both companies are able to grow and produce oranges, company number one has the absolute advantage because they use the much cheaper and natural methods, hence the greater demand. This theory can be contradicted with the concept of comparative advantage, which in description means the ability to produce specific goods at a lower opportunity
Tariffs are perhaps the most common way to restrict, or at least slightly discourage, foreign imports. Tariffs are, quite simply, taxes on imported goods. The thought behind imposing tariffs upon these goods is that it will cost more for foreign producers to sell their goods in the United States. However, the tariff is often passed down to the consumer. Even if the buyer can afford the cheaper American substitute for the product, the consumer is still robbed of fair choices between substitutes which throws off the fundamental forces of the market. Thus goes the anti-tariff argument. [2] Tariff-based protectionism does have its benefits, though. Due to fluctuations in currency prices, it is sometimes possible for foreign exporters to charge unnaturally low prices for their products. This is called dumping and will greatly reduce the sales of the domestic competitor. A tariff can be added to artificially raise the price of the foreign product. While this comes at the expense of consumers who wish to buy the cheapest products, it benefits American businesses and thus can indirectly benefit cons...
This essay will then evaluate the key studies within these two models and explain the strengths and weaknesses of the main theories.
In the story “Two Kinds”, the author, Amy Tan, intends to make reader think of the meaning behind the story. She doesn’t speak out as an analyzer to illustrate what is the real problem between her and her mother. Instead, she uses her own point of view as a narrator to state what she has experienced and what she feels in her mind all along the story. She has not judged what is right or wrong based on her opinion. Instead of giving instruction of how to solve a family issue, the author chooses to write a narrative diary containing her true feeling toward events during her childhood, which offers reader not only a clear account, but insight on how the narrator feels frustrated due to failing her mother’s expectations which leads to a large conflict between the narrator and her mother.
The United States of America (USA) and the United Kingdom (UK) are similar in many different ways, but their economies are much different. The difference in population contributes to several of the differences between the economies. Vast differences in the percentages of the Gross Domestic Product (GDP) that agriculture, industry and services make up are another way in which the economies differ. Last, the share of trade in each economy is extremely different.
understood through graphical representation. One should graph the supply of Chinese goods and services and demand for Chinese products by other countries. As Chinese policies are placed in effect the supply curve shifts to the right because of improved quality standards and higher production capabilities. Open-Door policies also indirectly increase the demand for Chinese goods and services due increased Chinese competitiveness on foreign markets.
Krugman defines comparative advantage as “the view that countries trade to take advantage of their differences” (1987, p. 132). Comparative advantage theories assume constant returns to scale and perfect competition. Krugman writes that trade exists when countries differ from one another in goods they have to offer, technology, or factor endowments. Although there are multiple models explaining the cause of trade, each differs as to what factors are included to explain why trade takes place. Economist Ohlin and authors Burenstam-Linder and Vernon began introducing counter-points to comparative advantage as early as the late 1950’s, saying that formal models of comparative advantage did not take into account all factors affecting international trade. International specialization and trade caused by increasing returns, as well as economies of scale and techn...
In 2013, the World Trade Organization published its World Trade Report. Found within this report were the details on the World's top importers and exporters of merchandise. In ascending order, the top exporters were; #1 China, #2 United States, #3 Germany, #4 Japan and #5 Netherlands. The top importers were; #1 United States, #2 China, #3 Germany, #4 Japan, #5 United Kingdom. But even a developing country can dominated the world's economy because in 2013, China became the World's number one exporter of merchandise and held the number two position behind the United Stat...
...s such as semi-conductors for automobiles, and chemicals. Its Imports totaled $350 billion which included fuels, textiles, and food products. Due to Japans rocky terrain agriculture makes up on 1% of its GDP. China reported exports of $232 billion and imports of $197 billion. Exports include footwear, toys, and sporting goods. Imports include machinery, iron, and steel. Obviously these exports and imports also show the difference in tier workforces both nations hold. Only 26% of the Chinese labor force works in the service industry while Japan boasts 65%. This is most likely brought about from China’s planned socialism policies. Both governments economic planning also severely affects each populace’s standards of living. Because of Japanese free enterprise, consumers have more freedom in allocating their savings into enjoying more non-essential commercial products.
Compare and contrast the Solow Growth Model with one Endogenous Growth Model In order to compare two models of economic growth, I will look at the primary model of exogenous growth, the Solow model, and ArrowÂ’s endogenous growth theory, based on research and development generated within the system. I will define the models and identify their similarities and differences. The Solow model, or Neoclassical growth model as it is sometimes known, is an example of exogenous growth models. This is to say that the level of economic growth depends on externally determined rates of growth in certain variables.
The Law of Comparative Advantage was introduced by David Ricardo in 1817 in his book ‘Principles of Political Economy and Taxation’. According to this classical theory, a comparative advantage exists for a country when it has a margin of superiority in the production of a certain commodity over others. Comparative advantage results from differing endowments in the factors of production like technology, natural endowments, climate, etc. among different countries. Therefore, each country exports the commodities which it can produce at a lower opportunity cost or, in other words, lower marginal cost of production and imports the rest. This would ultimately be beneficial for all countries engaging in free trade as each would gain through its specialization
... tax tariff. Based on the assumption that the company is exporting the finished goods to major developed countries such as the U.S. and the E.U. the transportation costs is high.
High price in imports. Because our main ingredient is imported from the U.S., the exportation and freight costs are higher than those compared to a local company.
...ly increase if the used factors are also being used at an increasing rate. No matter how efficient the factors of production are being used it is required to use more of them in order to significantly receive a higher output. There is also a limitation to this rule, that being that the two factors of production are used at a very similar level of involvement. If one factor of production is greatly in excess compared to the other then the excess will first be used until it is at a similar level to the factor production of which there is less. Once there are even amounts then the initial rule applies again, and an increase in both is required for significant increase in output. In order to truly be efficient with this model only if both of the factors are used at similar levels and there is no excess of one, meaning none is wasted and the optimal output can be reached.