Gains trade in economics Economics is the social science that is concerned with the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek οἰκονομία from οἶκος (oikos, "house") + νόμος (nomos, "custom" or "law"), hence "rules of the house(hold)". Current refers to net benefits to agents In economics, an agent is an actor and decision maker in a model. Typically, every agent makes decisions by solving a well or ill defined optimization/choice problem. The term agent can also be seen as equivalent to player in game theory from voluntary trading Trade is the voluntary exchange of goods, services, or both. Trade is also called commerce or transaction. A mechanism that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and services. Later one side of the barter were the metals, precious metals , bill, paper money. Modern traders instead with each other. It is commonly described as resulting from:
- specialization in production from division of labor Division of labour or economic specialisation is the specialisation of cooperative labour in specific, circumscribed tasks and roles. Historically an increasingly complex division of labour is closely associated with the growth of total output and trade, the rise of capitalism, and of the complexity of industrialisation processes. Division of, economies of scale Economies of scale, in microeconomics, are the cost advantages that a business obtains due to expansion. They are factors that cause a producer’s average cost per unit to fall as scale is increased. Economies of scale is a long run concept and refers to reductions in unit cost as the size of a facility, or scale, increases. Diseconomies of scale,[1][2][3][4] and relative availability of factor resources In economics, factors of production are the resources employed to produce goods and services. They facilitate production but do not become part of the product (as with raw materials) or become significantly transformed by the production process (as with fuel used to power machinery). To 19th century economists, the factors of production were land ( in types of output by farms, businesses, location[5] and economies An economy consists of the economic system of a country or other area, the labor, capital and land resources, and the economic agents that socially participate in the production, exchange, distribution, and consumption of goods and services of that area. A given economy is the end result of a process that involves its technological evolution,
- a resulting increase in total output possibilities In economics, a production-possibility frontier , sometimes called a "production-possibility curve" or "product transformation curve", is a graph that shows the different rates of production of two goods and/or services that an economy can produce efficiently during a specified period of time with a limited quantity of
- trade through markets A market is any one of a variety of different systems, institutions, procedures, social relations and infrastructures whereby persons trade, and goods and services are exchanged, forming part of the economy. It is an arrangement that allows buyers and sellers to exchange things. Competition is essential in markets, and separates market from trade from sale of one type of output for other, more highly valued goods.[6]
Market incentives, such as reflected in prices In all modern economies, the overwhelming majority of prices are quoted in units of some form of currency. Although in theory, prices could be quoted as quantities of other goods or services this sort of barter exchange is rarely seen of outputs and inputs, are theorized to attract factors of production In economics, factors of production are the resources employed to produce goods and services. They facilitate production but do not become part of the product (as with raw materials) or become significantly transformed by the production process (as with fuel used to power machinery). To 19th century economists, the factors of production were land (, including labor, into activities according to comparative advantage In economics, the law of comparative advantage refers to the ability of a party to produce a particular good or service at a lower opportunity cost than another party. It is the ability to produce a product with the highest relative efficiency given all the other products that could be produced. It can be contrasted with absolute advantage which, that is, for which they each have a low opportunity cost In economics, a production-possibility frontier , sometimes called a "production-possibility curve" or "product transformation curve", is a graph that shows the different rates of production of two goods and/or services that an economy can produce efficiently during a specified period of time with a limited quantity of. The factor owners then use their increased income from such specialization to buy more-valued goods of which they would otherwise be high-cost producers, hence their gains from trade. The concept may be applied to an entire economy for the alternatives of autarky Autarky is the quality of being self-sufficient. Usually the term is applied to political states or their economic policies. Autarky exists whenever an entity can survive or continue its activities without external assistance. Autarky is not necessarily economic. For example, a military autarky would be a state that could defend itself without (no trade) or trade. A measure of total gains from trade is the sum of consumer surplus The term surplus is used in economics for several related quantities. The consumer surplus is the amount that consumers benefit by being able to purchase a product for a price that is less than the most that they would be willing to pay. The producer surplus is the amount that producers benefit by selling at a market price mechanism that is higher and producer profits In neoclassical economics, economic profit, or profit, is the difference between a firm's total revenue and its opportunity costs. In classical economics profit is the return to the employer of capital stock in any productive pursuit involving labor. These two definitions are actually the same. In both instances economic profit is the return to an or, more roughly, the increased output from specialization in production with resulting trade.[7] Gains from trade may also refer to net benefits to a country from lowering barriers to trade such as tariffs A tariff is a tax levied on imports or exports on imports.[8]
From publication of Adam Smith Adam Smith was a Scottish moral philosopher and a pioneer of political economics. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations. The latter, usually abbreviated as The Wealth of Nations, is considered his magnum opus and's The Wealth of Nations An Inquiry into the Nature and Causes of the Wealth of Nations is the masterpiece of the Scottish economist and moral philosopher Adam Smith. It was first published in 1776. It is an account of economics at the dawn of the Industrial Revolution, as well as a rhetorical piece written for the generally educated individual of the 18th century - in 1776, it has been widely argued, that, with competition and absent market distortions A distortion is a condition that creates economic inefficiency, thus interfering with economic agents maximizing "social welfare" when they maximize their own welfare, such gains are positive in moving toward free trade Free trade is a system of trade policy that allows traders to act and or transact without interference from government. According to the law of comparative advantage the policy permits trading partners mutual gains from trade of goods and services and away from autarky or prohibitively high import tariffs A tariff is a tax levied on imports or exports. Rigorous early statements of the conditions under which this proposition holds are found in Samuelson in 1939 and 1962.[9][10][11] For the analytically tractable general case of Arrow-Debreu goods The Arrow–Debreu model, also referred to as the Arrow-Debreu-McKenzie model suggests that, should the assumptions made about the conditions under which it works hold , then there will be a set of prices such that aggregate supplies will equal aggregate demands for every commodity in the economy, formal proofs came in 1972 for determining the condition of no losers in moving from autarky toward free trade. It does not follow that no tariffs are the best an economy could do. Rather, a large economy might be able to set taxes and subsidies to its benefit at the expense of other economies. Later results of Kemp and others showed that in an Arrow-Debreu world with a system of lump-sum A lump-sum tax is a tax that is a fixed amount no matter what the change in circumstance of the taxed entity. It is a regressive tax, such that the lower income is, the higher percentage of income applicable to the tax. An example is a poll tax to vote, which is unchanged no matter what the income of the voter. In economic theory, a lump-sum tax compensatory mechanisms, corresponding to a customs union A customs union is a type of trade bloc which is composed of a free trade area with a common external tariff. The participant countries set up common external trade policy, but in some cases they use different import quotas. Common competition policy is also helpful to avoid competition deficiency for a given subset set of countries (described by free trade among a group of economies and a common set of tariffs), there is a common set of world' tariffs such that no country would be worse off than in the smaller customs union. The suggestion is that if a customs union has advantages for an economy, there is a worldwide customs union that is at least as good for each country in the world.[12]
Notes
- ^ Paul R. Krugman (1979). "Increasing Returns, Monopolistic Competition, and International Trade," . Journal of International Economics, 9(4), pp. 469–79 (press +).
- ^ Paul R. Krugman (1980). "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, 70(5), pp. 950–59 (press +).
- ^ Paul R. Krugman (1991). "Increasing Returns and Economic Geography," Journal of Political Economy, 99(3), pp. 483–99 (press +).
- ^ Paul R. Krugman (1981). "Intraindustry Specialization and the Gains from Trade," Journal of Political Economy, 89(6), pp. 959–73 (press +).
- ^ Anthony Venables (2008). "new economic geography," The New Palgrave Dictionary of Economics The New Palgrave Dictionary of Economics , 2nd Edition, is an eight-volume reference work, edited by Steven N. Durlauf and Lawrence E. Blume. It contains 5.8 million words and spans 7,680 pages with 1,872 articles. Included are 1057 new articles and, from earlier, 80 "classic" essays, 157 revised articles, and 550 edited articles. It is, 2nd Edition. Abstract.
- ^ Paul Samuelson Paul Anthony Samuelson was an American economist, and the first American to win the Nobel Prize in Economics. The Swedish Royal Academies stated, when awarding the prize, that he "has done more than any other contemporary economist to raise the level of scientific analysis in economic theory." Economic historian Randall E. Parker calls and William D. Nordhaus William Dawbney "Bill" Nordhaus is the Sterling Professor of Economics at Yale University. Nordhaus lives in New Haven, Connecticut, with his wife Barbara (2004). Economics Economics is an influential introductory textbook by American economists Paul Samuelson and William Nordhaus. It was first published in 1948, and has appeared in eighteen different editions, the most recent in 2004. It was the best selling economics textbook for many decades and still remains popular, selling over 300,000 copies of each edition, McGraw-Hill, ch. 2, "Trade, Specialization, and Division of Labor" section.
- ^ Paul Samuelson Paul Anthony Samuelson was an American economist, and the first American to win the Nobel Prize in Economics. The Swedish Royal Academies stated, when awarding the prize, that he "has done more than any other contemporary economist to raise the level of scientific analysis in economic theory." Economic historian Randall E. Parker calls and William Nordhaus William Dawbney "Bill" Nordhaus is the Sterling Professor of Economics at Yale University. Nordhaus lives in New Haven, Connecticut, with his wife Barbara (2004). Economics, ch. 12, 15, "Comparative Advantage among Nations" section," "Glossary of Terms," Gains from trade.
- ^ Alan V. Deardorff Alan V. Deardorff is the John W. Sweetland Professor of International Economics and a Professor of Economics and Public Policy at the University of Michigan, Ann Arbor. He is also the Associate Dean at the Gerald R. Ford School of Public Policy. Former Chair of the Economics Department, Professor Deardorff received his Ph.D. in Economics from (2006). : Glossary of International Economics, "Gains from trade" (located by clicking 'G'). "Gains from trade."
- ^ Paul Samuelson Paul Anthony Samuelson was an American economist, and the first American to win the Nobel Prize in Economics. The Swedish Royal Academies stated, when awarding the prize, that he "has done more than any other contemporary economist to raise the level of scientific analysis in economic theory." Economic historian Randall E. Parker calls (1939). "The Gains from International Trade," Canadian Journal of Economics and Political Science 5, pp. 195-205.
- ^ Paul Samuelson Paul Anthony Samuelson was an American economist, and the first American to win the Nobel Prize in Economics. The Swedish Royal Academies stated, when awarding the prize, that he "has done more than any other contemporary economist to raise the level of scientific analysis in economic theory." Economic historian Randall E. Parker calls (1962). "The Gains from International Trade Once Again," Economic Journal, 72(288), pp. 820-829.
- ^ Alan Deardorff Alan V. Deardorff is the John W. Sweetland Professor of International Economics and a Professor of Economics and Public Policy at the University of Michigan, Ann Arbor. He is also the Associate Dean at the Gerald R. Ford School of Public Policy. Former Chair of the Economics Department, Professor Deardorff received his Ph.D. in Economics from (2006). Glossary of International Economics, "Gains from trade theorem" (located by clicking 'G').
- ^ Murray C. Kemp (1987). "gains from trade," The New Palgrave: A Dictionary of Economics The New Palgrave Dictionary of Economics , 2nd Edition, is an eight-volume reference work, edited by Steven N. Durlauf and Lawrence E. Blume. It contains 5.8 million words and spans 7,680 pages with 1,872 articles. Included are 1057 new articles and, from earlier, 80 "classic" essays, 157 revised articles, and 550 edited articles. It is, v. 2, pp. 453-54.
References
- Jagdish N. Bhagwati Jagdish Natwarlal Bhagwati is an Indian-American economist and a University Professor at the School of International and Public Affairs at Columbia University. He is well known for his research in International Trade and for his advocacy of free trade, Arvind Panagariya, and T. N. Srinivasan Thirukodikaval Nilakanta "T. N." Srinivasan is the Samuel C. Park, Jr. Professor of Economics at Yale University. He was formerly chairman of the department of economics at Yale University. He was a special adviser to the Development Research Center at the World Bank from 1977 to 1980, and has taught at numerous academic institutions (1998, 2nd ed.). Lectures on International Trade, ch. 18 & 19, pp. 265-79.
- Giovanni Facchini and Gerald Willmann (2001) "Pareto Gains from Trade," Economia Politica, pp. 207-216. Literature review, 1999 prepublication version.
- Murray C. Kemp (1995). The Gains from Trade and the Gains From Aid: Essays in International Trade Theory.
- Paul R. Krugman ( 1987). "Is Free Trade Passé?" Journal of Economic Perspectives, 1(2), pp. 131-144.
- Joy Mazumdar (1996). "Do Static Gains from Trade Lead to Medium-Run Growth?" Journal of Political Economy, 104(6), 1996, pp. 1328-1337.
External links
- Trading News Feed
- Gains from Trade, from "International Trade," Arnold Kling
- Summary: Main Points on Economic Efficiency and the Gains from Trade, including graphs for consumer surplus and producer surplus
Categories: Economics terminology | International economics Categories: International relations | Economics | World economy | International trade Categories: International relations | Commerce | International business | International economics | Trade | Globalization | World economy | Urban, rural, and regional economics
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With trade a country can consume at a point outside of its PPC Suppose the best point for the U S was 3 trucks and 4 computers while Mexico s best point was 2 trucks and 1 computer Having assumed that a country is better off if it gets no less of each of the goods and more of at least one good than its intitial best point combinations to the northeast of the initial
Don Boudreaux
Sun, 25 Jul 2010 12:30:23 GM
I think we agree that . gain from trade. arises from differing opportunity costs in the two countries. But the exporter faces additional opportunity costs. The importer receives real resources. The exporter an IOU which is exposed to other ...
Q. True or False: A country cannot gain from trade with another country if it has an absolute advantage for all t?
Asked by KP - Sat Sep 13 16:00:52 2008 - - 2 Answers - 0 Comments
A. False - comparative advantage should be considered instead of absolute.
Answered by Jurasea - Sat Sep 13 16:13:20 2008
