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Econ 503 Week 7 Notes

by: Tulsi

Econ 503 Week 7 Notes ECON 503 001

GPA 3.954

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About this Document

international trade economics week 7 notes hauk
International Trade Economics
William Hauk
Class Notes
International, trade, Economics
25 ?




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This 2 page Class Notes was uploaded by Tulsi on Sunday October 9, 2016. The Class Notes belongs to ECON 503 001 at University of South Carolina taught by William Hauk in Fall 2016. Since its upload, it has received 4 views. For similar materials see International Trade Economics in Economics at University of South Carolina.


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Date Created: 10/09/16
Week 7 Tuesday,October4, 20161:19 PM Monopolistic Competition Model -Firms producingdifferentiated varieties ofa similar good -constantlow MC -high FC -decreasing AC -shortrun:#firms are fixed -long run:firms can enter and exit market MR = MC P = AC If 2 identical countries openup to trade with each other -size of the market doubles -in the short-run,# of firms doubles -each firm's "share ofthe market" stays the same -# ofvarieties available to consumers doubles -individualfirm demand curvesdo notshift -individualfirm demand curvesbecome more elastic (flatter) -consumersbecome more price sensitive -MR curvealso gets flatter (intersects MC farther to the right) -firms are losing money in the short runbecause keep having to lower prices in responseto other firms -in the long run,some firms will leave the market From Short-Runwith Trade to Long-Runwith Trade -some firms leave market -firm specific demand curvesshift right -decreasesvarieties available -firms specific demand curvesbecome less elastic (more steep) -MR 3 MC;P = AC Long Run Autarky Equilibrium vs Long-RunTrade Equilibrium -zeroeconomic profitforfirms in both -with trade, firms charge a lower price -with trade, firms charge a lower price -sell ahigher quantity b/c AC is falling -each remaining firm producesmore, moves farther down AC curve -consumersconsumerhigher totally quantity -N < N < 2N T number offirms producingin each countryhas fallen T 2N : number ofvarieties available to consumerswith trade Number ofvarieties available in each countryhas risen (have access to goods producedin both countries) Gravity Equation 2 T i,j * (GDP * iDP)/disj i,j Volume of trade between countries i and j = constant * GDP of 2 countries/squareof distance between countries What is the effectof the US-Canada Borderon international trade? Quite a big one Bordermatters a lot Intra-industrytrade occurswhen a countryis bothexporting and importing goods within the same industry Index ofintra-industry trade: minimum {exports, imports} / .5*( exports + imports ) *100 0 means no intra-industry trade 100 means complete intra-industry trade


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