International Trade Models

1
International Trade Models

• ECN 3860
• International Economics

2
Why Nations Trade

• International trade provides us with a variety of
  goods and services from other countries
• International trade promotes specialization and
  efficiency in production and
• International trade provides a source of income
  and employment for the countries involved

3
Production Possibilities Frontier
Consumer Goods

• Production Possibilities Frontier (PPF) shows
  all possible combinations of two products
  (Consumer Goods and Capital Goods) that a country
  can produce with available technology and full
  employment of all resources.

PPF
0
Capital Goods
4
Production Possibilities
5
Indifference Curves

• An Indifference Curve represents all combinations
  of market baskets that provide a consumer with
  the same level of satisfaction.

6
Characteristics of Indifference Curves

• Indifference curves are continuous and every-
  where dense
• Indifference curves slope downward to the right
  and
• Indifference curves do not intersect

C
U2
U1
K
0
7
General Equilibrium
C
E
CE
U
PPF
K
O
KE