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International Trade Models

International Trade Models. ECN 3860 International Economics. 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

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International Trade Models

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  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

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