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msmarco_v2.1_doc_01_1671351171#2_2452154578 | http://internationalecon.com/Trade/Tch40/T40-2.php | Trade: Chapter 40-2: Ricardian Model Assumptions | Ricardian Model Assumptions
Ricardian Model Assumptions | Consumers (the laborers) are assumed to maximize utility subject to an income constraint. Below you will find a more complete description of each assumption along with a mathematical formulation of the model. Perfect Competition
Perfect competition in all markets means that the following conditions are assumed to hold. A) Many firms produce output in each industry such that each firm is too small for its output decisions to affect the market price. This implies that when choosing output to maximize profit each firm takes the price as given or exogenous. B) Firms choose output to maximize profit. The rule used by perfectly competitive firms is to choose that output level which equalizes the price with the marginal cost. That is, set P = MC. C) Output is homogeneous across all firms. This means that goods are identical in all of their characteristics such that a consumer would find products from different firms indistinguishable. | 867 | 1,808 |
msmarco_v2.1_doc_01_1671351171#3_2452155823 | http://internationalecon.com/Trade/Tch40/T40-2.php | Trade: Chapter 40-2: Ricardian Model Assumptions | Ricardian Model Assumptions
Ricardian Model Assumptions | B) Firms choose output to maximize profit. The rule used by perfectly competitive firms is to choose that output level which equalizes the price with the marginal cost. That is, set P = MC. C) Output is homogeneous across all firms. This means that goods are identical in all of their characteristics such that a consumer would find products from different firms indistinguishable. We could also say that goods from different firms are perfect substitutes for all consumers. D) Free entry and exit of firms in response to profits. Positive profit sends a signal to the rest of the economy and new firms enter the industry. Negative profit (losses) leads existing firms to exit, one by one, out of the industry. As a result, in the long run economic profit is driven to zero in the industry. | 1,426 | 2,217 |
msmarco_v2.1_doc_01_1671351171#4_2452156917 | http://internationalecon.com/Trade/Tch40/T40-2.php | Trade: Chapter 40-2: Ricardian Model Assumptions | Ricardian Model Assumptions
Ricardian Model Assumptions | We could also say that goods from different firms are perfect substitutes for all consumers. D) Free entry and exit of firms in response to profits. Positive profit sends a signal to the rest of the economy and new firms enter the industry. Negative profit (losses) leads existing firms to exit, one by one, out of the industry. As a result, in the long run economic profit is driven to zero in the industry. E) Perfect information. All firms have the necessary info to maximize profit, to identify the positive profit and negative profit industries, etc. Two Countries
The case of two countries is used to simplify the model analysis. Let one country be the US, the other France *. Note, anything related exclusively to France* in the model will be marked with an asterisk (or in some places we'll distinguish countries by color). | 1,809 | 2,640 |
msmarco_v2.1_doc_01_1671351171#5_2452158053 | http://internationalecon.com/Trade/Tch40/T40-2.php | Trade: Chapter 40-2: Ricardian Model Assumptions | Ricardian Model Assumptions
Ricardian Model Assumptions | E) Perfect information. All firms have the necessary info to maximize profit, to identify the positive profit and negative profit industries, etc. Two Countries
The case of two countries is used to simplify the model analysis. Let one country be the US, the other France *. Note, anything related exclusively to France* in the model will be marked with an asterisk (or in some places we'll distinguish countries by color). The two countries are assumed to differ only with respect to the production technology. Two Goods
Two goods are produced by both countries. We assume a barter economy. This means that there is no money used to make transactions. Instead, for trade to occur, goods must be traded for other goods. | 2,217 | 2,936 |
msmarco_v2.1_doc_01_1671351171#6_2452159077 | http://internationalecon.com/Trade/Tch40/T40-2.php | Trade: Chapter 40-2: Ricardian Model Assumptions | Ricardian Model Assumptions
Ricardian Model Assumptions | The two countries are assumed to differ only with respect to the production technology. Two Goods
Two goods are produced by both countries. We assume a barter economy. This means that there is no money used to make transactions. Instead, for trade to occur, goods must be traded for other goods. Thus we need at least two goods in the model. Let the two produced goods be wine and cheese. One Factor of Production
Labor is the one factor of production used to produce each of the goods. The factor is homogeneous and can freely move between industries. Utility Maximization / Demand
In Ricardo's original presentation of the model he focused exclusively on the supply side. | 2,641 | 3,314 |
msmarco_v2.1_doc_01_1671351171#7_2452160057 | http://internationalecon.com/Trade/Tch40/T40-2.php | Trade: Chapter 40-2: Ricardian Model Assumptions | Ricardian Model Assumptions
Ricardian Model Assumptions | Thus we need at least two goods in the model. Let the two produced goods be wine and cheese. One Factor of Production
Labor is the one factor of production used to produce each of the goods. The factor is homogeneous and can freely move between industries. Utility Maximization / Demand
In Ricardo's original presentation of the model he focused exclusively on the supply side. Only later did John Stuart Mill introduce demand into the model. Since much can be learned with Ricardo's incomplete model we proceed initially without formally specifying demand or utility functions. Later we will use the aggregate utility specification defined below to depict an equilibrium in the model. When needed we will assume that aggregate utility can be represented by a function of the form U = C C C W where C C and C W are the aggregate quantities of cheese and wine consumed in the country. This function is chosen because it has properties that make it easy to depict an equilibrium. | 2,937 | 3,914 |
msmarco_v2.1_doc_01_1671351171#8_2452161340 | http://internationalecon.com/Trade/Tch40/T40-2.php | Trade: Chapter 40-2: Ricardian Model Assumptions | Ricardian Model Assumptions
Ricardian Model Assumptions | Only later did John Stuart Mill introduce demand into the model. Since much can be learned with Ricardo's incomplete model we proceed initially without formally specifying demand or utility functions. Later we will use the aggregate utility specification defined below to depict an equilibrium in the model. When needed we will assume that aggregate utility can be represented by a function of the form U = C C C W where C C and C W are the aggregate quantities of cheese and wine consumed in the country. This function is chosen because it has properties that make it easy to depict an equilibrium. The most important feature is that the function is homothetic. This implies that the country consumes wine and cheese in the same fixed proportion, at given prices, regardless of income. If two countries share the same homothetic preferences, then when the countries share the same prices, as they will in free trade, they will also consume wine and cheese in the same proportion. General Equilibrium
The Ricardian model is a general equilibrium model. This means that it describes a complete circular flow of money in exchange for goods and services. | 3,315 | 4,466 |
msmarco_v2.1_doc_01_1671351171#9_2452162796 | http://internationalecon.com/Trade/Tch40/T40-2.php | Trade: Chapter 40-2: Ricardian Model Assumptions | Ricardian Model Assumptions
Ricardian Model Assumptions | The most important feature is that the function is homothetic. This implies that the country consumes wine and cheese in the same fixed proportion, at given prices, regardless of income. If two countries share the same homothetic preferences, then when the countries share the same prices, as they will in free trade, they will also consume wine and cheese in the same proportion. General Equilibrium
The Ricardian model is a general equilibrium model. This means that it describes a complete circular flow of money in exchange for goods and services. Thus, the sale of goods and services generates revenue to the firms which in turn is used to pay for the factor services (wages to workers in this case) used in production. The factor income (wages) is used, in turn, to buy the goods and services produced by the firms. This generates revenue to the firms and the cycle repeats again. A "general equilibrium" arises when prices of goods, services and factors are such as to equalize supply and demand in all markets simultaneously. Production
The production functions below represent industry production, not firm production. | 3,915 | 5,042 |
msmarco_v2.1_doc_01_1671351171#10_2452164231 | http://internationalecon.com/Trade/Tch40/T40-2.php | Trade: Chapter 40-2: Ricardian Model Assumptions | Ricardian Model Assumptions
Ricardian Model Assumptions | Thus, the sale of goods and services generates revenue to the firms which in turn is used to pay for the factor services (wages to workers in this case) used in production. The factor income (wages) is used, in turn, to buy the goods and services produced by the firms. This generates revenue to the firms and the cycle repeats again. A "general equilibrium" arises when prices of goods, services and factors are such as to equalize supply and demand in all markets simultaneously. Production
The production functions below represent industry production, not firm production. The industry consists of many small firms in light of the assumption of perfect competition. Production of Cheese
US
France
where
Q C = quantity of cheese produced in the US. L C = amount of labor applied to cheese production in the US. a LC = unit-labor requirement in cheese production in the US. ( hours of labor necessary to produce one unit of cheese)
and where all starred variables are defined in the same way but refer to the process in France. | 4,467 | 5,497 |
msmarco_v2.1_doc_01_1671351171#11_2452165576 | http://internationalecon.com/Trade/Tch40/T40-2.php | Trade: Chapter 40-2: Ricardian Model Assumptions | Ricardian Model Assumptions
Ricardian Model Assumptions | The industry consists of many small firms in light of the assumption of perfect competition. Production of Cheese
US
France
where
Q C = quantity of cheese produced in the US. L C = amount of labor applied to cheese production in the US. a LC = unit-labor requirement in cheese production in the US. ( hours of labor necessary to produce one unit of cheese)
and where all starred variables are defined in the same way but refer to the process in France. Production of Wine
US
France
where
Q W = quantity of wine produced in the US. L W = amount of labor applied to wine production in the US. a LW = unit-labor requirement in wine production in the US. ( hours of labor necessary to produce one unit of wine)
and where all starred variables are defined in the same way but refer to the process in France. The unit-labor requirements define the technology of production in two countries. | 5,043 | 5,931 |
msmarco_v2.1_doc_01_1671351171#12_2452166783 | http://internationalecon.com/Trade/Tch40/T40-2.php | Trade: Chapter 40-2: Ricardian Model Assumptions | Ricardian Model Assumptions
Ricardian Model Assumptions | Production of Wine
US
France
where
Q W = quantity of wine produced in the US. L W = amount of labor applied to wine production in the US. a LW = unit-labor requirement in wine production in the US. ( hours of labor necessary to produce one unit of wine)
and where all starred variables are defined in the same way but refer to the process in France. The unit-labor requirements define the technology of production in two countries. Differences in these labor costs across countries represent differences in technology. Resource Constraint
The resource constraint in this model is also a labor constraint since labor is the only factor of production. US
France
where L is the labor endowment in the US. That is, the total number of hours the work force is willing to provide. Again all starred variables refer to France. | 5,497 | 6,321 |
msmarco_v2.1_doc_01_1671351171#13_2452167923 | http://internationalecon.com/Trade/Tch40/T40-2.php | Trade: Chapter 40-2: Ricardian Model Assumptions | Ricardian Model Assumptions
Ricardian Model Assumptions | Differences in these labor costs across countries represent differences in technology. Resource Constraint
The resource constraint in this model is also a labor constraint since labor is the only factor of production. US
France
where L is the labor endowment in the US. That is, the total number of hours the work force is willing to provide. Again all starred variables refer to France. When the resource constraint holds with equality it implies that the resource is fully employed. A more general specification of the model would require only that the sum of labor applied in both industries be less than or equal to the labor endowment. However, the assumptions of the model will guarantee that production uses all available resources, and so we can use the less general specification above. Factor Mobility
The one factor of production, labor, is assumed to be immobile across countries. Thus labor cannot move from one country to another in search of higher wages. | 5,932 | 6,904 |
msmarco_v2.1_doc_01_1671351171#14_2452169206 | http://internationalecon.com/Trade/Tch40/T40-2.php | Trade: Chapter 40-2: Ricardian Model Assumptions | Ricardian Model Assumptions
Ricardian Model Assumptions | When the resource constraint holds with equality it implies that the resource is fully employed. A more general specification of the model would require only that the sum of labor applied in both industries be less than or equal to the labor endowment. However, the assumptions of the model will guarantee that production uses all available resources, and so we can use the less general specification above. Factor Mobility
The one factor of production, labor, is assumed to be immobile across countries. Thus labor cannot move from one country to another in search of higher wages. However, labor is assumed to be freely and costlessly mobile between industries within a country. This means that workers working in the one industry can be moved to the other industry without any cost incurred by the firms or the workers. The significance of this assumption is demonstrated in the immobile factor model in Chapter 70. Transportation Costs
The model assumes that goods can be transported between countries at no cost. This assumption simplifies the exposition of the model. | 6,321 | 7,395 |
msmarco_v2.1_doc_01_1671351171#15_2452170586 | http://internationalecon.com/Trade/Tch40/T40-2.php | Trade: Chapter 40-2: Ricardian Model Assumptions | Ricardian Model Assumptions
Ricardian Model Assumptions | However, labor is assumed to be freely and costlessly mobile between industries within a country. This means that workers working in the one industry can be moved to the other industry without any cost incurred by the firms or the workers. The significance of this assumption is demonstrated in the immobile factor model in Chapter 70. Transportation Costs
The model assumes that goods can be transported between countries at no cost. This assumption simplifies the exposition of the model. If transport costs were included, it can be shown that the key results of the model may still obtain. Exogenous and Endogenous Variables
In describing any model it is always useful to keep track of which variables are exogenous and which are endogenous. Exogenous variables are those variables in a model that are determined by processes that are not described within the model itself. When describing and solving a model, exogenous variables are taken as fixed parameters whose values are known. They are variables over which the agents within the model have no control. | 6,905 | 7,967 |
msmarco_v2.1_doc_01_1671351171#16_2452171955 | http://internationalecon.com/Trade/Tch40/T40-2.php | Trade: Chapter 40-2: Ricardian Model Assumptions | Ricardian Model Assumptions
Ricardian Model Assumptions | If transport costs were included, it can be shown that the key results of the model may still obtain. Exogenous and Endogenous Variables
In describing any model it is always useful to keep track of which variables are exogenous and which are endogenous. Exogenous variables are those variables in a model that are determined by processes that are not described within the model itself. When describing and solving a model, exogenous variables are taken as fixed parameters whose values are known. They are variables over which the agents within the model have no control. In the Ricardian model the parameters ( L, a LC, a LW ) are exogenous. The corresponding starred variables are exogenous in the other country. Endogenous variables are those variables determined when the model is solved. Thus finding the solution to a model means solving for the values of the endogenous variables. Agents in the model can control or influence the endogenous variables through their actions. | 7,396 | 8,376 |
msmarco_v2.1_doc_01_1671351171#17_2452173241 | http://internationalecon.com/Trade/Tch40/T40-2.php | Trade: Chapter 40-2: Ricardian Model Assumptions | Ricardian Model Assumptions
Ricardian Model Assumptions | In the Ricardian model the parameters ( L, a LC, a LW ) are exogenous. The corresponding starred variables are exogenous in the other country. Endogenous variables are those variables determined when the model is solved. Thus finding the solution to a model means solving for the values of the endogenous variables. Agents in the model can control or influence the endogenous variables through their actions. In the Ricardian model the variables ( L C, L W, Q C , Q W ) are endogenous. Likewise the corresponding starred variables are endogenous in the other country. International Trade Theory and Policy - Chapter 40-2: Last Updated on 2/15/07 | 7,967 | 8,613 |
msmarco_v2.1_doc_01_1671360122#0_2452174191 | http://internationalecon.com/Trade/Tch40/T40-4.php | Trade: Chapter 40-4: Definitions: Absolute and Comparative Advantage | Definitions: Absolute and Comparative Advantage
Definitions: Absolute and Comparative Advantage | Trade: Chapter 40-4: Definitions: Absolute and Comparative Advantage
Definitions: Absolute and Comparative Advantage
The basis for trade in the Ricardian model is differences in technology between countries. Below we define two different ways to describe technology differences. The first method, called absolute advantage, is the way most people understand technology differences. The second method, called comparative advantage is a much more difficult concept. As a result even those who learn about comparative advantage often will confuse it with absolute advantage. It is quite common to see misapplications of the principle of comparative advantage in newspaper and journal stories about trade. | 0 | 724 |
msmarco_v2.1_doc_01_1671360122#1_2452175300 | http://internationalecon.com/Trade/Tch40/T40-4.php | Trade: Chapter 40-4: Definitions: Absolute and Comparative Advantage | Definitions: Absolute and Comparative Advantage
Definitions: Absolute and Comparative Advantage | Below we define two different ways to describe technology differences. The first method, called absolute advantage, is the way most people understand technology differences. The second method, called comparative advantage is a much more difficult concept. As a result even those who learn about comparative advantage often will confuse it with absolute advantage. It is quite common to see misapplications of the principle of comparative advantage in newspaper and journal stories about trade. Many times authors write comparative advantage when in actuality they are describing absolute advantage. This misconception often leads to erroneous implications such as a fear that technology advances in other countries will cause our country to lose its comparative advantage in everything. As will be shown, this is essentially impossible. To define absolute advantage it is useful to define labor productivity first. To define comparative advantage it is useful to first define opportunity cost. | 231 | 1,224 |
msmarco_v2.1_doc_01_1671360122#2_2452176656 | http://internationalecon.com/Trade/Tch40/T40-4.php | Trade: Chapter 40-4: Definitions: Absolute and Comparative Advantage | Definitions: Absolute and Comparative Advantage
Definitions: Absolute and Comparative Advantage | Many times authors write comparative advantage when in actuality they are describing absolute advantage. This misconception often leads to erroneous implications such as a fear that technology advances in other countries will cause our country to lose its comparative advantage in everything. As will be shown, this is essentially impossible. To define absolute advantage it is useful to define labor productivity first. To define comparative advantage it is useful to first define opportunity cost. Each of these are defined formally below using the notation of the Ricardian model. The concepts are presented in the following order. Labor Productivity
Absolute Advantage
Opportunity Costs
Comparative Advantage
Labor Productivity
Labor productivity is defined as the quantity of output that can be produced with a unit of labor. Since a LC represents hours of labor needed to produce one pound of cheese, its reciprocal, , represents the labor productivity of cheese production in the US. Similarly represents the labor productivity of wine production in the US. | 725 | 1,789 |
msmarco_v2.1_doc_01_1671360122#3_2452178088 | http://internationalecon.com/Trade/Tch40/T40-4.php | Trade: Chapter 40-4: Definitions: Absolute and Comparative Advantage | Definitions: Absolute and Comparative Advantage
Definitions: Absolute and Comparative Advantage | Each of these are defined formally below using the notation of the Ricardian model. The concepts are presented in the following order. Labor Productivity
Absolute Advantage
Opportunity Costs
Comparative Advantage
Labor Productivity
Labor productivity is defined as the quantity of output that can be produced with a unit of labor. Since a LC represents hours of labor needed to produce one pound of cheese, its reciprocal, , represents the labor productivity of cheese production in the US. Similarly represents the labor productivity of wine production in the US. Absolute Advantage
A country has an absolute advantage in the production of a good relative to another country if it can produce the good at lower cost or with higher productivity. Absolute advantage compares industry productivities across countries. In this model we would say the U.S. has an absolute advantage in cheese production relative to France if
or if
The first expression means that the US uses fewer labor resources (hours of work) to produce a pound of cheese than does France. In other words the resource cost of production is lower in the US. The second expression means that labor productivity in cheese in the US is greater than in France. | 1,225 | 2,446 |
msmarco_v2.1_doc_01_1671360122#4_2452179681 | http://internationalecon.com/Trade/Tch40/T40-4.php | Trade: Chapter 40-4: Definitions: Absolute and Comparative Advantage | Definitions: Absolute and Comparative Advantage
Definitions: Absolute and Comparative Advantage | Absolute Advantage
A country has an absolute advantage in the production of a good relative to another country if it can produce the good at lower cost or with higher productivity. Absolute advantage compares industry productivities across countries. In this model we would say the U.S. has an absolute advantage in cheese production relative to France if
or if
The first expression means that the US uses fewer labor resources (hours of work) to produce a pound of cheese than does France. In other words the resource cost of production is lower in the US. The second expression means that labor productivity in cheese in the US is greater than in France. Thus the US generates more pounds of cheese per hour of work. Obviously if then France has the absolute advantage in cheese. Also if then the US has the absolute advantage in wine production relative to France. Opportunity Cost
Opportunity cost is defined generally as the value of the next best opportunity. In the context of national production, the nation has opportunities to produce wine and cheese. | 1,789 | 2,851 |
msmarco_v2.1_doc_01_1671360122#5_2452181110 | http://internationalecon.com/Trade/Tch40/T40-4.php | Trade: Chapter 40-4: Definitions: Absolute and Comparative Advantage | Definitions: Absolute and Comparative Advantage
Definitions: Absolute and Comparative Advantage | Thus the US generates more pounds of cheese per hour of work. Obviously if then France has the absolute advantage in cheese. Also if then the US has the absolute advantage in wine production relative to France. Opportunity Cost
Opportunity cost is defined generally as the value of the next best opportunity. In the context of national production, the nation has opportunities to produce wine and cheese. If the nation wishes to produce more cheese, then because labor resources are scarce and fully employed, it is necessary to move labor out of wine production in order to increase cheese production. The loss in wine production necessary to produce more cheese represents the opportunity cost to the economy. The slope of the PPF, , corresponds to the opportunity cost of production in the economy. To see this more clearly consider points A and B on the adjoining PPF diagram. Let the horizontal distance between A and B be one pound of cheese. | 2,447 | 3,395 |
msmarco_v2.1_doc_01_1671360122#6_2452182423 | http://internationalecon.com/Trade/Tch40/T40-4.php | Trade: Chapter 40-4: Definitions: Absolute and Comparative Advantage | Definitions: Absolute and Comparative Advantage
Definitions: Absolute and Comparative Advantage | If the nation wishes to produce more cheese, then because labor resources are scarce and fully employed, it is necessary to move labor out of wine production in order to increase cheese production. The loss in wine production necessary to produce more cheese represents the opportunity cost to the economy. The slope of the PPF, , corresponds to the opportunity cost of production in the economy. To see this more clearly consider points A and B on the adjoining PPF diagram. Let the horizontal distance between A and B be one pound of cheese. Label the vertical distance X. The distance X then represents the quantity of wine that must be given up to produce one additional pound of cheese when moving from point A to B. In other words X is the opportunity cost of producing cheese. Note also that the slope of the line between A and B is given by the formula . Thus the slope of the line between A and B is the opportunity cost which from above is given as . We can more clearly see why the slope of the PPF represents the opportunity cost by noting the units of this expression. Thus, the slope of the PPF expresses the number of gallons of wine that must be given up (hence the minus sign) to produce another pound of cheese. | 2,852 | 4,082 |
msmarco_v2.1_doc_01_1671360122#7_2452184017 | http://internationalecon.com/Trade/Tch40/T40-4.php | Trade: Chapter 40-4: Definitions: Absolute and Comparative Advantage | Definitions: Absolute and Comparative Advantage
Definitions: Absolute and Comparative Advantage | Label the vertical distance X. The distance X then represents the quantity of wine that must be given up to produce one additional pound of cheese when moving from point A to B. In other words X is the opportunity cost of producing cheese. Note also that the slope of the line between A and B is given by the formula . Thus the slope of the line between A and B is the opportunity cost which from above is given as . We can more clearly see why the slope of the PPF represents the opportunity cost by noting the units of this expression. Thus, the slope of the PPF expresses the number of gallons of wine that must be given up (hence the minus sign) to produce another pound of cheese. Hence it is the opportunity cost of cheese production (in terms of wine). The reciprocal of the slope in turn represents the opportunity cost of wine production (in terms of cheese). Since in the Ricardian model the PPF is linear, the opportunity cost is the same at all possible production points along the PPF. For this reason the Ricardian model is sometimes referred to as a constant (opportunity) cost model. Comparative Advantage
A country has a comparative advantage in the production of a good if it can produce that good at a lower opportunity cost relative to another country. | 3,396 | 4,669 |
msmarco_v2.1_doc_01_1671360122#8_2452185655 | http://internationalecon.com/Trade/Tch40/T40-4.php | Trade: Chapter 40-4: Definitions: Absolute and Comparative Advantage | Definitions: Absolute and Comparative Advantage
Definitions: Absolute and Comparative Advantage | Hence it is the opportunity cost of cheese production (in terms of wine). The reciprocal of the slope in turn represents the opportunity cost of wine production (in terms of cheese). Since in the Ricardian model the PPF is linear, the opportunity cost is the same at all possible production points along the PPF. For this reason the Ricardian model is sometimes referred to as a constant (opportunity) cost model. Comparative Advantage
A country has a comparative advantage in the production of a good if it can produce that good at a lower opportunity cost relative to another country. Thus the US has a comparative advantage in cheese production relative to France if: This means that the US must give up less wine to produce another pound of cheese than France must give up to produce another pound. It also means that the slope of the US PPF is flatter than the slope of France's PPF. Starting with the inequality above, cross multiplication implies the following,
This means that France can produce wine at a lower opportunity cost than the US. In other words France has a comparative advantage in wine production. | 4,083 | 5,202 |
msmarco_v2.1_doc_01_1671360122#9_2452187140 | http://internationalecon.com/Trade/Tch40/T40-4.php | Trade: Chapter 40-4: Definitions: Absolute and Comparative Advantage | Definitions: Absolute and Comparative Advantage
Definitions: Absolute and Comparative Advantage | Thus the US has a comparative advantage in cheese production relative to France if: This means that the US must give up less wine to produce another pound of cheese than France must give up to produce another pound. It also means that the slope of the US PPF is flatter than the slope of France's PPF. Starting with the inequality above, cross multiplication implies the following,
This means that France can produce wine at a lower opportunity cost than the US. In other words France has a comparative advantage in wine production. This also means that if the US has a comparative advantage in one of the two goods, France must have the comparative advantage in the other good. It is not possible for one country to have the comparative advantage in both of the goods produced. Suppose one country has an absolute advantage in the production of both goods. Even in this case each country will have a comparative advantage in the production of one of the goods. For example, suppose a LC = 10, a LW = 2, a LC* = 20, a LW* = 5. | 4,670 | 5,696 |
msmarco_v2.1_doc_01_1671360122#10_2452188531 | http://internationalecon.com/Trade/Tch40/T40-4.php | Trade: Chapter 40-4: Definitions: Absolute and Comparative Advantage | Definitions: Absolute and Comparative Advantage
Definitions: Absolute and Comparative Advantage | This also means that if the US has a comparative advantage in one of the two goods, France must have the comparative advantage in the other good. It is not possible for one country to have the comparative advantage in both of the goods produced. Suppose one country has an absolute advantage in the production of both goods. Even in this case each country will have a comparative advantage in the production of one of the goods. For example, suppose a LC = 10, a LW = 2, a LC* = 20, a LW* = 5. In this case a LC (10) < a LC* (20) and a LW (2) < a LW* (5) so the US has the absolute advantage in the production of both wine and cheese. However, it is also true that so that France has the comparative advantage in cheese production relative to the US. Another way to describe comparative advantage is to look at the relative productivity advantages of a country. In the US the labor productivity in cheese is 1/10 while in France it is 1/20. This means that the US productivity advantage in cheese is (1/10)/ (1/20) = 2/1. | 5,203 | 6,224 |
msmarco_v2.1_doc_01_1671360122#11_2452189917 | http://internationalecon.com/Trade/Tch40/T40-4.php | Trade: Chapter 40-4: Definitions: Absolute and Comparative Advantage | Definitions: Absolute and Comparative Advantage
Definitions: Absolute and Comparative Advantage | In this case a LC (10) < a LC* (20) and a LW (2) < a LW* (5) so the US has the absolute advantage in the production of both wine and cheese. However, it is also true that so that France has the comparative advantage in cheese production relative to the US. Another way to describe comparative advantage is to look at the relative productivity advantages of a country. In the US the labor productivity in cheese is 1/10 while in France it is 1/20. This means that the US productivity advantage in cheese is (1/10)/ (1/20) = 2/1. This means the US is twice as productive as France in cheese production. In wine production the US advantage is (1/2)/ (1/5) = (2.5)/1. This means the US is two and one-half times as productive as France in wine production. The comparative advantage good in the US then is that good in which the US enjoys the greatest productivity advantage, wine. France's comparative advantage good however, is that good in which it has the least productivity disadvantage in production, namely cheese. | 5,697 | 6,714 |
msmarco_v2.1_doc_01_1671360122#12_2452191299 | http://internationalecon.com/Trade/Tch40/T40-4.php | Trade: Chapter 40-4: Definitions: Absolute and Comparative Advantage | Definitions: Absolute and Comparative Advantage
Definitions: Absolute and Comparative Advantage | This means the US is twice as productive as France in cheese production. In wine production the US advantage is (1/2)/ (1/5) = (2.5)/1. This means the US is two and one-half times as productive as France in wine production. The comparative advantage good in the US then is that good in which the US enjoys the greatest productivity advantage, wine. France's comparative advantage good however, is that good in which it has the least productivity disadvantage in production, namely cheese. The only case in which neither country has a comparative advantage is when the opportunity costs are equal in both countries. In other words, when
then neither country has a comparative advantage. It would seem however, that this is an unlikely occurrence. International Trade Theory and Policy - Chapter 40-4: Last Updated on 7/18/06 | 6,225 | 7,049 |
msmarco_v2.1_doc_01_1671367535#0_2452192489 | http://internationalecon.com/Trade/Tch70/T70-0.php | Trade: Chapter 70-0: Factor Mobility and Trade - Overview | Factor Mobility and Trade - Overview
Factor Mobility and Trade - Overview | Trade: Chapter 70-0: Factor Mobility and Trade - Overview
Factor Mobility and Trade - Overview
Factor mobility refers to the ability to move factors of production - labor, capital or land - out of one production process into another. Factor mobility may involve the movement of factors between firms within an industry, as when one steel plant closes but sells its production equipment to another steel firm. Mobility may involve the movement of factors across industries within a country, as when a worker leaves employment at a textile firm and begins work at a automobile factory. Finally mobility may involve the movement of factors between countries either within industries or across industries, as when a farm worker migrates to another country or when a factory is moved abroad. The standard assumptions in the literature are that factors of production are freely (i.e., without obstruction) and costlessly mobile between firms within an industry and between industries within a country, but are immobile between countries. The rationale for the first assumption, that factors are freely mobile within an industry, is perhaps closest to reality. The skills acquired by workers and the productivity of capital are likely to be very similar across firms producing identical or closely substitutable products. Although there would likely be some transition costs incurred, such as search, transportation and transaction costs, it remains reasonable to assume for simplicity that the transfer is costless. | 0 | 1,532 |
msmarco_v2.1_doc_01_1671367535#1_2452194374 | http://internationalecon.com/Trade/Tch70/T70-0.php | Trade: Chapter 70-0: Factor Mobility and Trade - Overview | Factor Mobility and Trade - Overview
Factor Mobility and Trade - Overview | Finally mobility may involve the movement of factors between countries either within industries or across industries, as when a farm worker migrates to another country or when a factory is moved abroad. The standard assumptions in the literature are that factors of production are freely (i.e., without obstruction) and costlessly mobile between firms within an industry and between industries within a country, but are immobile between countries. The rationale for the first assumption, that factors are freely mobile within an industry, is perhaps closest to reality. The skills acquired by workers and the productivity of capital are likely to be very similar across firms producing identical or closely substitutable products. Although there would likely be some transition costs incurred, such as search, transportation and transaction costs, it remains reasonable to assume for simplicity that the transfer is costless. As a result this assumption is rarely relaxed. The assumption that factors are easily movable across industries within a country is probably unrealistic, especially in the short-run. Indeed this assumption has been a standard source of criticism for traditional trade models. In the Ricardian and Heckscher-Ohlin models, factors are assumed to be homogeneous and freely and costlessly mobile between industries. When changes occur in the economy requiring the expansion of one industry and a contraction of another, it just happens. | 607 | 2,065 |
msmarco_v2.1_doc_01_1671367535#2_2452196162 | http://internationalecon.com/Trade/Tch70/T70-0.php | Trade: Chapter 70-0: Factor Mobility and Trade - Overview | Factor Mobility and Trade - Overview
Factor Mobility and Trade - Overview | As a result this assumption is rarely relaxed. The assumption that factors are easily movable across industries within a country is probably unrealistic, especially in the short-run. Indeed this assumption has been a standard source of criticism for traditional trade models. In the Ricardian and Heckscher-Ohlin models, factors are assumed to be homogeneous and freely and costlessly mobile between industries. When changes occur in the economy requiring the expansion of one industry and a contraction of another, it just happens. There are no search, transportation or transaction costs. There is no unemployment of resources. Also, since the factors are assumed to be homogeneous, once transferred to a completely different industry, they immediately become just as productive as the factors that had originally been employed in that industry. Clearly, these conditions cannot be expected to hold in very many realistic situations. For some, this inconsistency is enough to cast doubt on all of the propositions that result from these theories. | 1,533 | 2,581 |
msmarco_v2.1_doc_01_1671367535#3_2452197541 | http://internationalecon.com/Trade/Tch70/T70-0.php | Trade: Chapter 70-0: Factor Mobility and Trade - Overview | Factor Mobility and Trade - Overview
Factor Mobility and Trade - Overview | There are no search, transportation or transaction costs. There is no unemployment of resources. Also, since the factors are assumed to be homogeneous, once transferred to a completely different industry, they immediately become just as productive as the factors that had originally been employed in that industry. Clearly, these conditions cannot be expected to hold in very many realistic situations. For some, this inconsistency is enough to cast doubt on all of the propositions that result from these theories. It is important to note, however, that trade theory has attempted to deal with this concern to some extent. The immobile factor and the specific factor models represent attempts to incorporate factor immobility precisely because of the concerns listed above. Although these models do not introduce resource transition in a complicated way, they do demonstrate important income redistribution results and allow one to infer the likely effects of more complex adjustment processes by piecing together the results of several models. ( See Chapter 100-3, especially). The final issue of mobility involves the mobility of factors between countries. | 2,066 | 3,224 |
msmarco_v2.1_doc_01_1671367535#4_2452199031 | http://internationalecon.com/Trade/Tch70/T70-0.php | Trade: Chapter 70-0: Factor Mobility and Trade - Overview | Factor Mobility and Trade - Overview
Factor Mobility and Trade - Overview | It is important to note, however, that trade theory has attempted to deal with this concern to some extent. The immobile factor and the specific factor models represent attempts to incorporate factor immobility precisely because of the concerns listed above. Although these models do not introduce resource transition in a complicated way, they do demonstrate important income redistribution results and allow one to infer the likely effects of more complex adjustment processes by piecing together the results of several models. ( See Chapter 100-3, especially). The final issue of mobility involves the mobility of factors between countries. In most international trade models, factors are assumed to be immobile across borders. Traditionally, most workers remain in their country of national origin due to immigration restrictions while capital controls have in some periods restricted international movements of capital. When international factor mobility is not possible, trade models demonstrate how national gains can arise through trade in goods and services. Of course, international mobility can and does happen to varying degrees. Workers migrate across borders, sometimes in violation of immigration laws, while capital flows readily across borders in today's markets. | 2,581 | 3,861 |
msmarco_v2.1_doc_01_1671367535#5_2452200642 | http://internationalecon.com/Trade/Tch70/T70-0.php | Trade: Chapter 70-0: Factor Mobility and Trade - Overview | Factor Mobility and Trade - Overview
Factor Mobility and Trade - Overview | In most international trade models, factors are assumed to be immobile across borders. Traditionally, most workers remain in their country of national origin due to immigration restrictions while capital controls have in some periods restricted international movements of capital. When international factor mobility is not possible, trade models demonstrate how national gains can arise through trade in goods and services. Of course, international mobility can and does happen to varying degrees. Workers migrate across borders, sometimes in violation of immigration laws, while capital flows readily across borders in today's markets. The implications of international factor mobility has been addressed in the context of some trade models. A classic result by Mundell (1957) demonstrates that international factor mobility can act as a substitute for international trade in goods and services. International Trade Theory and Policy - Chapter 70-0: Last Updated on 9/16/99 | 3,225 | 4,199 |
msmarco_v2.1_doc_01_1671372043#0_2452201947 | http://internationalecon.com/Trade/Tch70/T70-20.php | Trade: Chapter 70-20: The Specific Factor Model - Overview |
The Specific Factor Model - Overview | Trade: Chapter 70-20: The Specific Factor Model - Overview
The Specific Factor Model - Overview
The specific factor (SF) model was originally discussed by Jacob Viner and it is a variant of the Ricardian model. Hence the model is sometimes referred to as the Ricardo-Viner model. The model was later developed and formalized mathematically by Ronald Jones (1971) and Michael Mussa (1974). Jones referred to it as the 2 good-3 factor model. Mussa developed a simple graphical depiction of the equilibrium which can be used to portray some of the model results. It is this view that is presented in most textbooks. The model's name refers to its distinguishing feature; that one factor of production is assumed to be "specific" to a particular industry. | 0 | 774 |
msmarco_v2.1_doc_01_1671372043#1_2452203041 | http://internationalecon.com/Trade/Tch70/T70-20.php | Trade: Chapter 70-20: The Specific Factor Model - Overview |
The Specific Factor Model - Overview | Jones referred to it as the 2 good-3 factor model. Mussa developed a simple graphical depiction of the equilibrium which can be used to portray some of the model results. It is this view that is presented in most textbooks. The model's name refers to its distinguishing feature; that one factor of production is assumed to be "specific" to a particular industry. A specific factor is one which is stuck in an industry or is immobile between industries in response to changes in market conditions. A factor may be immobile between industries for a number of reasons. Some factors may be specifically designed (in the case of capital) or specifically trained (in the case of labor) for use in a particular production process. In these cases it may be impossible, or at least difficult or costly, to move these factors across industries. See Sections 70-1 and 70-2 for more detailed reasons for factor immobility. | 412 | 1,322 |
msmarco_v2.1_doc_01_1671372043#2_2452204249 | http://internationalecon.com/Trade/Tch70/T70-20.php | Trade: Chapter 70-20: The Specific Factor Model - Overview |
The Specific Factor Model - Overview | A specific factor is one which is stuck in an industry or is immobile between industries in response to changes in market conditions. A factor may be immobile between industries for a number of reasons. Some factors may be specifically designed (in the case of capital) or specifically trained (in the case of labor) for use in a particular production process. In these cases it may be impossible, or at least difficult or costly, to move these factors across industries. See Sections 70-1 and 70-2 for more detailed reasons for factor immobility. The specific factor model is designed to demonstrate the effects of trade in an economy in which one factor of production is specific to an industry. The most interesting results pertain to the changes in the distribution of income that would arise as a country moves to free trade. Basic Assumptions
The specific factor model assumes that an economy produces two goods using two factors of production, capital and labor, in a perfectly competitive market. One of the two factors of production, typically capital, is assumed to be specific to a particular industry. That is, it is completely immobile. | 775 | 1,924 |
msmarco_v2.1_doc_01_1671372043#3_2452205695 | http://internationalecon.com/Trade/Tch70/T70-20.php | Trade: Chapter 70-20: The Specific Factor Model - Overview |
The Specific Factor Model - Overview | The specific factor model is designed to demonstrate the effects of trade in an economy in which one factor of production is specific to an industry. The most interesting results pertain to the changes in the distribution of income that would arise as a country moves to free trade. Basic Assumptions
The specific factor model assumes that an economy produces two goods using two factors of production, capital and labor, in a perfectly competitive market. One of the two factors of production, typically capital, is assumed to be specific to a particular industry. That is, it is completely immobile. The second factor, labor, is assumed to be freely and costlessly mobile between the two industries. Because capital is immobile, one could assume that the capital in the two industries are different, or differentiated, and thus are not substitutable in production. Under this interpretation, it makes sense to imagine that there are really three factors of production: labor, specific capital in industry one, and specific capital in industry two. These assumptions place the specific factor model squarely between an immobile factor model and the Heckscher-Ohlin model. | 1,322 | 2,495 |
msmarco_v2.1_doc_01_1671372043#4_2452207165 | http://internationalecon.com/Trade/Tch70/T70-20.php | Trade: Chapter 70-20: The Specific Factor Model - Overview |
The Specific Factor Model - Overview | The second factor, labor, is assumed to be freely and costlessly mobile between the two industries. Because capital is immobile, one could assume that the capital in the two industries are different, or differentiated, and thus are not substitutable in production. Under this interpretation, it makes sense to imagine that there are really three factors of production: labor, specific capital in industry one, and specific capital in industry two. These assumptions place the specific factor model squarely between an immobile factor model and the Heckscher-Ohlin model. In an immobile factor model, all of the factors of production are specific to an industry and cannot be moved. In a Heckscher-Ohlin model, both factors are assumed to be freely mobile; that is, neither factor is specific to an industry. Since the mobility of factors in response to any economic change is likely to rise over time, we can interpret the immobile factor model results as short-run effects, the specific factor model results as medium-run effects and the Heckscher-Ohlin model results as long-run effects. Production of good one requires the input of labor and industry-one specific capital. | 1,925 | 3,100 |
msmarco_v2.1_doc_01_1671372043#5_2452208637 | http://internationalecon.com/Trade/Tch70/T70-20.php | Trade: Chapter 70-20: The Specific Factor Model - Overview |
The Specific Factor Model - Overview | In an immobile factor model, all of the factors of production are specific to an industry and cannot be moved. In a Heckscher-Ohlin model, both factors are assumed to be freely mobile; that is, neither factor is specific to an industry. Since the mobility of factors in response to any economic change is likely to rise over time, we can interpret the immobile factor model results as short-run effects, the specific factor model results as medium-run effects and the Heckscher-Ohlin model results as long-run effects. Production of good one requires the input of labor and industry-one specific capital. Production of good two requires labor and industry-two specific capital. There is a fixed endowment of sector-specific capital in each industry as well as a fixed endowment of labor. Full employment of labor is assumed, which implies that the sum of the labor used in each industry equals the labor endowment. Full employment of sector-specific capital is also assumed, however, in this case the sum of the capital used in all of the firms within the industry must equal the endowment of sector-specific capital. The model assumes that firms choose an output level to maximize profit, taking prices and wages as given. | 2,496 | 3,719 |
msmarco_v2.1_doc_01_1671372043#6_2452210157 | http://internationalecon.com/Trade/Tch70/T70-20.php | Trade: Chapter 70-20: The Specific Factor Model - Overview |
The Specific Factor Model - Overview | Production of good two requires labor and industry-two specific capital. There is a fixed endowment of sector-specific capital in each industry as well as a fixed endowment of labor. Full employment of labor is assumed, which implies that the sum of the labor used in each industry equals the labor endowment. Full employment of sector-specific capital is also assumed, however, in this case the sum of the capital used in all of the firms within the industry must equal the endowment of sector-specific capital. The model assumes that firms choose an output level to maximize profit, taking prices and wages as given. The equilibrium condition will have firms choosing an output level, and hence labor usage level, such that the market determined wage is equal to the value of the marginal product of the last unit of labor. The value of the marginal product is the increment to revenue that a firm will obtain by adding another unit of labor to its production process. It is found as the product of the price of the good in the market and the marginal product of labor. Production is assumed to display diminishing returns because the fixed stock of capital means that each additional worker has less capital to work with in production. This means that each additional unit of labor will add a smaller increment to output, and since the output price is fixed, the value of the marginal product declines as labor usage rises. | 3,101 | 4,527 |
msmarco_v2.1_doc_01_1671372043#7_2452211880 | http://internationalecon.com/Trade/Tch70/T70-20.php | Trade: Chapter 70-20: The Specific Factor Model - Overview |
The Specific Factor Model - Overview | The equilibrium condition will have firms choosing an output level, and hence labor usage level, such that the market determined wage is equal to the value of the marginal product of the last unit of labor. The value of the marginal product is the increment to revenue that a firm will obtain by adding another unit of labor to its production process. It is found as the product of the price of the good in the market and the marginal product of labor. Production is assumed to display diminishing returns because the fixed stock of capital means that each additional worker has less capital to work with in production. This means that each additional unit of labor will add a smaller increment to output, and since the output price is fixed, the value of the marginal product declines as labor usage rises. When all firms behave in this way, the allocation of labor between the two industries is uniquely determined. The production possibilities frontier will exhibit increasing opportunity costs. This is because expansion of one industry is possible by transferring labor out of the other industry, which must therefore contract. Due to the diminishing returns to labor, each additional unit of labor switched will have a smaller effect on the expanding industry and a larger effect on the contracting industry. This means that the graph of the PPF in the specific factor model will look similar to the PPF in the variable proportion Heckscher-Ohlin model. | 3,720 | 5,179 |
msmarco_v2.1_doc_01_1671372043#8_2452213636 | http://internationalecon.com/Trade/Tch70/T70-20.php | Trade: Chapter 70-20: The Specific Factor Model - Overview |
The Specific Factor Model - Overview | When all firms behave in this way, the allocation of labor between the two industries is uniquely determined. The production possibilities frontier will exhibit increasing opportunity costs. This is because expansion of one industry is possible by transferring labor out of the other industry, which must therefore contract. Due to the diminishing returns to labor, each additional unit of labor switched will have a smaller effect on the expanding industry and a larger effect on the contracting industry. This means that the graph of the PPF in the specific factor model will look similar to the PPF in the variable proportion Heckscher-Ohlin model. However, in relation to a model in which both factors were freely mobile, the specific factor model PPF will lie on the interior. This is because the lack of mobility by one factor, inhibits firms from taking full advantage of efficiency improvements that can arise when both factors can be freely reallocated. Specific Factor Model Results
The specific factor model is used to demonstrate the effects of economic changes on labor allocation, output levels and factor returns. Many types of economic changes can be considered including a movement to free trade, the implementation of a tariff or quota, growth of the labor or capital endowment, or technological changes. This section will focus on effects that result from a change in prices. | 4,528 | 5,922 |
msmarco_v2.1_doc_01_1671372043#9_2452215328 | http://internationalecon.com/Trade/Tch70/T70-20.php | Trade: Chapter 70-20: The Specific Factor Model - Overview |
The Specific Factor Model - Overview | However, in relation to a model in which both factors were freely mobile, the specific factor model PPF will lie on the interior. This is because the lack of mobility by one factor, inhibits firms from taking full advantage of efficiency improvements that can arise when both factors can be freely reallocated. Specific Factor Model Results
The specific factor model is used to demonstrate the effects of economic changes on labor allocation, output levels and factor returns. Many types of economic changes can be considered including a movement to free trade, the implementation of a tariff or quota, growth of the labor or capital endowment, or technological changes. This section will focus on effects that result from a change in prices. In an international trade context, prices might change when a country liberalizes trade or when it puts into place additional barriers to trade. When the model is placed into an international trade context, differences between countries, of some sort, are needed to induce trade. The standard approach is to assume that countries differ in the amounts of the specific factors used in each industry relative to the total amount of labor. This would be sufficient to cause the PPFs in the two countries to differ and could potentially generate trade. Under this assumption the specific factor model is a simple variant of the Heckscher-Ohlin model. | 5,180 | 6,569 |
msmarco_v2.1_doc_01_1671372043#10_2452217015 | http://internationalecon.com/Trade/Tch70/T70-20.php | Trade: Chapter 70-20: The Specific Factor Model - Overview |
The Specific Factor Model - Overview | In an international trade context, prices might change when a country liberalizes trade or when it puts into place additional barriers to trade. When the model is placed into an international trade context, differences between countries, of some sort, are needed to induce trade. The standard approach is to assume that countries differ in the amounts of the specific factors used in each industry relative to the total amount of labor. This would be sufficient to cause the PPFs in the two countries to differ and could potentially generate trade. Under this assumption the specific factor model is a simple variant of the Heckscher-Ohlin model. However, the results of the model are not sensitive to this assumption. Trade may arise due to differences in endowments, differences in technology, differences in demands or some combination. The results derive as long as there is a price change, for whatever reason. So suppose, in a two-good specific factor model, that the price of one good rises. If the price change is the result of trade liberalization, then the industry whose price rises is the export sector. | 5,923 | 7,038 |
msmarco_v2.1_doc_01_1671372043#11_2452218428 | http://internationalecon.com/Trade/Tch70/T70-20.php | Trade: Chapter 70-20: The Specific Factor Model - Overview |
The Specific Factor Model - Overview | However, the results of the model are not sensitive to this assumption. Trade may arise due to differences in endowments, differences in technology, differences in demands or some combination. The results derive as long as there is a price change, for whatever reason. So suppose, in a two-good specific factor model, that the price of one good rises. If the price change is the result of trade liberalization, then the industry whose price rises is the export sector. The price increase would set off the following series of adjustments. First, higher export prices would initially raise profits in the export sector since wages and rents may take time to adjust. The value of the marginal product in exports would rise above the current wage and that will induce the firms to hire more workers and expand output. However, to induce the movement of labor, the export firms will have to raise the wage that they pay. Since all labor is alike (the model assumes labor is homogeneous) the import-competing sector will have to raise their wages in step so as not to lose all of its workers. | 6,570 | 7,657 |
msmarco_v2.1_doc_01_1671372043#12_2452219813 | http://internationalecon.com/Trade/Tch70/T70-20.php | Trade: Chapter 70-20: The Specific Factor Model - Overview |
The Specific Factor Model - Overview | The price increase would set off the following series of adjustments. First, higher export prices would initially raise profits in the export sector since wages and rents may take time to adjust. The value of the marginal product in exports would rise above the current wage and that will induce the firms to hire more workers and expand output. However, to induce the movement of labor, the export firms will have to raise the wage that they pay. Since all labor is alike (the model assumes labor is homogeneous) the import-competing sector will have to raise their wages in step so as not to lose all of its workers. The higher wages will induce the expansion of output in the export sector (the sector whose price rises) and a reduction in output in the import-competing sector. The adjustment will continue until the wage rises to a level that equalizes the value of marginal product in both industries. The return to capital, in response to the price change, will vary across industries. In the import-competing industry, lower revenues and higher wages will combine to reduce the return to capital in that sector. However, in the export sector, greater output and higher prices will combine to raise the return to capital in that sector. | 7,039 | 8,282 |
msmarco_v2.1_doc_01_1671372043#13_2452221354 | http://internationalecon.com/Trade/Tch70/T70-20.php | Trade: Chapter 70-20: The Specific Factor Model - Overview |
The Specific Factor Model - Overview | The higher wages will induce the expansion of output in the export sector (the sector whose price rises) and a reduction in output in the import-competing sector. The adjustment will continue until the wage rises to a level that equalizes the value of marginal product in both industries. The return to capital, in response to the price change, will vary across industries. In the import-competing industry, lower revenues and higher wages will combine to reduce the return to capital in that sector. However, in the export sector, greater output and higher prices will combine to raise the return to capital in that sector. The real effects of the price change on wages and rents is somewhat more difficult to explain but is decidedly more important. Remember that absolute increases in the wage, or the rental rate on capital, does not guarantee that the recipient of that income is better-off, since the price of one of the goods is also rising. Thus, the more relevant variables to consider are the real returns to capital (real rents) in each industry and the real return to labor (real wages). Ronald Jones (1971) derived a magnification effect for prices in the specific factor model which demonstrated the effects on the real returns to capital and labor in response to changes in output prices. In the case of an increase in the price of an export good, and the decrease in the price of an import good, as when a country moves to free trade, the magnification effect predicts the following impacts,
1) the real return to capital in the export industry will rise with respect to purchases of both exports and imports,
2) the real return to capital in the import-competing industry will fall with respect to purchases of both exports and imports,
3) the real wage to workers in both industries will rise with respect to purchases of the import good and will fall with respect to purchases of the export good. | 7,658 | 9,573 |
msmarco_v2.1_doc_01_1671372043#14_2452223570 | http://internationalecon.com/Trade/Tch70/T70-20.php | Trade: Chapter 70-20: The Specific Factor Model - Overview |
The Specific Factor Model - Overview | The real effects of the price change on wages and rents is somewhat more difficult to explain but is decidedly more important. Remember that absolute increases in the wage, or the rental rate on capital, does not guarantee that the recipient of that income is better-off, since the price of one of the goods is also rising. Thus, the more relevant variables to consider are the real returns to capital (real rents) in each industry and the real return to labor (real wages). Ronald Jones (1971) derived a magnification effect for prices in the specific factor model which demonstrated the effects on the real returns to capital and labor in response to changes in output prices. In the case of an increase in the price of an export good, and the decrease in the price of an import good, as when a country moves to free trade, the magnification effect predicts the following impacts,
1) the real return to capital in the export industry will rise with respect to purchases of both exports and imports,
2) the real return to capital in the import-competing industry will fall with respect to purchases of both exports and imports,
3) the real wage to workers in both industries will rise with respect to purchases of the import good and will fall with respect to purchases of the export good. This result means that when a factor of production, like capital, is immobile between industries, a movement to free trade will cause a redistribution of income. Some individuals, owners of capital in the export industry, will benefit from free trade. Other individuals, owners of capital in the import-competing industries, will lose from free trade. Workers, who are freely mobile between industries may gain or may lose sin | 8,282 | 10,000 |
msmarco_v2.1_doc_01_1671382979#0_2452225589 | http://internationalecon.com/Trade/Tch90/T90-11.php | Trade: Chapter 90-11: Welfare Effects of a Tariff: Small Country |
Welfare Effects of a Tariff: Small Country | Trade: Chapter 90-11: Welfare Effects of a Tariff: Small Country
Welfare Effects of a Tariff: Small Country
Consider a market in a small importing country that faces an international or world price of P FT in free trade. The free trade equilibrium is depicted in the adjoining diagram where P FT is the free trade equilibrium price. At that price, domestic demand is given by D FT, domestic supply by S FT and imports by the difference D FT - S FT (the blue line in the figure). When a specific tariff is implemented by a small country it will raise the domestic price by the full value of the tariff. Suppose the price in the importing country rises to because of the tariff. In this case the tariff rate would be , equal to the length of the green line segment in the diagram. | 0 | 801 |
msmarco_v2.1_doc_01_1671382979#1_2452226720 | http://internationalecon.com/Trade/Tch90/T90-11.php | Trade: Chapter 90-11: Welfare Effects of a Tariff: Small Country |
Welfare Effects of a Tariff: Small Country | The free trade equilibrium is depicted in the adjoining diagram where P FT is the free trade equilibrium price. At that price, domestic demand is given by D FT, domestic supply by S FT and imports by the difference D FT - S FT (the blue line in the figure). When a specific tariff is implemented by a small country it will raise the domestic price by the full value of the tariff. Suppose the price in the importing country rises to because of the tariff. In this case the tariff rate would be , equal to the length of the green line segment in the diagram. The following Table provides a summary of the direction and magnitude of the welfare effects to producers, consumers and the governments in the importing country. The aggregate national welfare effects is also shown. Positive welfare effects are shown in black, negative effects are shown in red. Welfare Effects of an Import Tariff
Importing Country
Consumer Surplus
- (A + B + C + D)
Producer Surplus
+ A
Govt. Revenue
+ C
National Welfare
- B - D
Tariff Effects on: | 244 | 1,271 |
msmarco_v2.1_doc_01_1671382979#2_2452228066 | http://internationalecon.com/Trade/Tch90/T90-11.php | Trade: Chapter 90-11: Welfare Effects of a Tariff: Small Country |
Welfare Effects of a Tariff: Small Country | The following Table provides a summary of the direction and magnitude of the welfare effects to producers, consumers and the governments in the importing country. The aggregate national welfare effects is also shown. Positive welfare effects are shown in black, negative effects are shown in red. Welfare Effects of an Import Tariff
Importing Country
Consumer Surplus
- (A + B + C + D)
Producer Surplus
+ A
Govt. Revenue
+ C
National Welfare
- B - D
Tariff Effects on: Importing Country Consumers - Consumers of the product in the importing country are worse-off as a result of the tariff. The increase in the domestic price of both imported goods and the domestic substitutes reduces consumer surplus in the market. Refer to the Table and Figure to see how the magnitude of the change in consumer surplus is represented. Importing Country Producers - Producers in the importing country are better-off as a result of the tariff. The increase in the price of their product increases producer surplus in the industry. | 801 | 1,818 |
msmarco_v2.1_doc_01_1671382979#3_2452229401 | http://internationalecon.com/Trade/Tch90/T90-11.php | Trade: Chapter 90-11: Welfare Effects of a Tariff: Small Country |
Welfare Effects of a Tariff: Small Country | Importing Country Consumers - Consumers of the product in the importing country are worse-off as a result of the tariff. The increase in the domestic price of both imported goods and the domestic substitutes reduces consumer surplus in the market. Refer to the Table and Figure to see how the magnitude of the change in consumer surplus is represented. Importing Country Producers - Producers in the importing country are better-off as a result of the tariff. The increase in the price of their product increases producer surplus in the industry. The price increases also induces an increase in output of existing firms (and perhaps the addition of new firms), an increase in employment, and an increase in profit and/or payments to fixed costs. Refer to the Table and Figure to see how the magnitude of the change in producer surplus is represented. Importing Country Government - The government receives tariff revenue as a result of the tariff. Who will benefit from the revenue depends on how the government spends it. These funds help support diverse government spending programs, therefore, someone within the country will be the likely recipient of these benefits. | 1,271 | 2,443 |
msmarco_v2.1_doc_01_1671382979#4_2452230881 | http://internationalecon.com/Trade/Tch90/T90-11.php | Trade: Chapter 90-11: Welfare Effects of a Tariff: Small Country |
Welfare Effects of a Tariff: Small Country | The price increases also induces an increase in output of existing firms (and perhaps the addition of new firms), an increase in employment, and an increase in profit and/or payments to fixed costs. Refer to the Table and Figure to see how the magnitude of the change in producer surplus is represented. Importing Country Government - The government receives tariff revenue as a result of the tariff. Who will benefit from the revenue depends on how the government spends it. These funds help support diverse government spending programs, therefore, someone within the country will be the likely recipient of these benefits. Refer to the Table and Figure to see how the magnitude of the tariff revenue is represented. Importing Country - The aggregate welfare effect for the country is found by summing the gains and losses to consumers, producers and the government. The net effect consists of two components: a negative production efficiency loss (B), and a negative consumption efficiency loss (D). The two losses together are typically referred to as "deadweight losses." | 1,819 | 2,894 |
msmarco_v2.1_doc_01_1671382979#5_2452232267 | http://internationalecon.com/Trade/Tch90/T90-11.php | Trade: Chapter 90-11: Welfare Effects of a Tariff: Small Country |
Welfare Effects of a Tariff: Small Country | Refer to the Table and Figure to see how the magnitude of the tariff revenue is represented. Importing Country - The aggregate welfare effect for the country is found by summing the gains and losses to consumers, producers and the government. The net effect consists of two components: a negative production efficiency loss (B), and a negative consumption efficiency loss (D). The two losses together are typically referred to as "deadweight losses." Refer to the Table and Figure to see how the magnitude of the change in national welfare is represented. Because there are only negative elements in the national welfare change, the net national welfare effect of a tariff must be negative. This means that a tariff implemented by a "small" importing country must reduce national welfare. In summary,
1) whenever a "small" country implements a tariff, national welfare falls. 2) the higher the tariff is set, the larger will be the loss in national welfare. | 2,444 | 3,401 |
msmarco_v2.1_doc_01_1671382979#6_2452233540 | http://internationalecon.com/Trade/Tch90/T90-11.php | Trade: Chapter 90-11: Welfare Effects of a Tariff: Small Country |
Welfare Effects of a Tariff: Small Country | Refer to the Table and Figure to see how the magnitude of the change in national welfare is represented. Because there are only negative elements in the national welfare change, the net national welfare effect of a tariff must be negative. This means that a tariff implemented by a "small" importing country must reduce national welfare. In summary,
1) whenever a "small" country implements a tariff, national welfare falls. 2) the higher the tariff is set, the larger will be the loss in national welfare. 3) the tariff causes a redistribution of income. Producers and the recipients of government spending gain, while consumers lose. 4) because the country is assumed "small," the tariff has no effect upon the price in the rest of the world, therefore there are no welfare changes for producers or consumers there. Even though imports are reduced, the related reduction in exports by the rest of the world is assumed to be too small to have a noticeable impact. International Trade Theory and Policy - Chapter 90-11: | 2,895 | 3,914 |
msmarco_v2.1_doc_01_1671382979#7_2452234875 | http://internationalecon.com/Trade/Tch90/T90-11.php | Trade: Chapter 90-11: Welfare Effects of a Tariff: Small Country |
Welfare Effects of a Tariff: Small Country | 3) the tariff causes a redistribution of income. Producers and the recipients of government spending gain, while consumers lose. 4) because the country is assumed "small," the tariff has no effect upon the price in the rest of the world, therefore there are no welfare changes for producers or consumers there. Even though imports are reduced, the related reduction in exports by the rest of the world is assumed to be too small to have a noticeable impact. International Trade Theory and Policy - Chapter 90-11: Last Updated on 10/11/00 | 3,401 | 3,939 |
msmarco_v2.1_doc_01_1671387231#0_2452235723 | http://internationalecon.com/Trade/Tch90/T90-8.php | Trade: Chapter 90-8: Welfare Effects of a Tariff: Large Country | Welfare Effects of a Tariff: Large Country
Welfare Effects of a Tariff: Large Country | Trade: Chapter 90-8: Welfare Effects of a Tariff: Large Country
Welfare Effects of a Tariff: Large Country
Suppose for simplicity that there are only two trading countries, one importing and one exporting country. The supply and demand curves for the two countries are shown in the adjoining diagram. P FT is the free trade equilibrium price. At that price, the excess demand by the importing country equals excess supply by the exporter. The quantity of imports and exports is shown as the blue line segment on each country's graph. ( That's the horizontal distance between the supply and demand curves at the free trade price) When a large importing country implements a tariff it will cause an increase in the price of the good on the domestic market and a decrease in the price in the rest of the world (RoW). | 0 | 835 |
msmarco_v2.1_doc_01_1671387231#1_2452236929 | http://internationalecon.com/Trade/Tch90/T90-8.php | Trade: Chapter 90-8: Welfare Effects of a Tariff: Large Country | Welfare Effects of a Tariff: Large Country
Welfare Effects of a Tariff: Large Country | The supply and demand curves for the two countries are shown in the adjoining diagram. P FT is the free trade equilibrium price. At that price, the excess demand by the importing country equals excess supply by the exporter. The quantity of imports and exports is shown as the blue line segment on each country's graph. ( That's the horizontal distance between the supply and demand curves at the free trade price) When a large importing country implements a tariff it will cause an increase in the price of the good on the domestic market and a decrease in the price in the rest of the world (RoW). Suppose after the tariff the price in the importing country rises to and the price in the exporting country falls to . If the tariff is a specific tax then the tariff rate would be , equal to the length of the green line segment in the diagram. If the tariff were an ad valorem tax then the tariff rate would be given by. The following Table provides a summary of the direction and magnitude of the welfare effects to producers, consumers and the governments in the importing and exporting countries. The aggregate national welfare effects and the world welfare effects are also shown. | 237 | 1,421 |
msmarco_v2.1_doc_01_1671387231#2_2452238462 | http://internationalecon.com/Trade/Tch90/T90-8.php | Trade: Chapter 90-8: Welfare Effects of a Tariff: Large Country | Welfare Effects of a Tariff: Large Country
Welfare Effects of a Tariff: Large Country | Suppose after the tariff the price in the importing country rises to and the price in the exporting country falls to . If the tariff is a specific tax then the tariff rate would be , equal to the length of the green line segment in the diagram. If the tariff were an ad valorem tax then the tariff rate would be given by. The following Table provides a summary of the direction and magnitude of the welfare effects to producers, consumers and the governments in the importing and exporting countries. The aggregate national welfare effects and the world welfare effects are also shown. Online, or with a color print-out, positive welfare effects are shown in black, negative effects in red. Welfare Effects of an Import Tariff
Importing Country
Exporting Country
Consumer Surplus
- (A + B + C + D)
+ e
Producer Surplus
+ A
- (e + f + g +h)
Govt. Revenue
+ (C + G)
0
National Welfare
+ G - (B + D)
- (f + g + h)
World Welfare
- (B + D) - (f + h)
Tariff Effects on: Importing Country Consumers - Consumers of the product in the importing country suffer a reduction in well-being as a result of the tariff. The increase in the domestic price of both imported goods and the domestic substitutes reduces the amount of consumer surplus in the market. | 836 | 2,081 |
msmarco_v2.1_doc_01_1671387231#3_2452240073 | http://internationalecon.com/Trade/Tch90/T90-8.php | Trade: Chapter 90-8: Welfare Effects of a Tariff: Large Country | Welfare Effects of a Tariff: Large Country
Welfare Effects of a Tariff: Large Country | Online, or with a color print-out, positive welfare effects are shown in black, negative effects in red. Welfare Effects of an Import Tariff
Importing Country
Exporting Country
Consumer Surplus
- (A + B + C + D)
+ e
Producer Surplus
+ A
- (e + f + g +h)
Govt. Revenue
+ (C + G)
0
National Welfare
+ G - (B + D)
- (f + g + h)
World Welfare
- (B + D) - (f + h)
Tariff Effects on: Importing Country Consumers - Consumers of the product in the importing country suffer a reduction in well-being as a result of the tariff. The increase in the domestic price of both imported goods and the domestic substitutes reduces the amount of consumer surplus in the market. Refer to the Table and Figure to see how the magnitude of the change in consumer surplus is represented. Importing Country Producers - Producers in the importing country experience an increase in well-being as a result of the tariff. The increase in the price of their product on the domestic market increases producer surplus in the industry. The price increases also induces an increase in output of existing firms (and perhaps the addition of new firms), an increase in employment, and an increase in profit and/or payments to fixed costs. Refer to the Table and Figure to see how the magnitude of the change in producer surplus is represented. | 1,422 | 2,729 |
msmarco_v2.1_doc_01_1671387231#4_2452241747 | http://internationalecon.com/Trade/Tch90/T90-8.php | Trade: Chapter 90-8: Welfare Effects of a Tariff: Large Country | Welfare Effects of a Tariff: Large Country
Welfare Effects of a Tariff: Large Country | Refer to the Table and Figure to see how the magnitude of the change in consumer surplus is represented. Importing Country Producers - Producers in the importing country experience an increase in well-being as a result of the tariff. The increase in the price of their product on the domestic market increases producer surplus in the industry. The price increases also induces an increase in output of existing firms (and perhaps the addition of new firms), an increase in employment, and an increase in profit and/or payments to fixed costs. Refer to the Table and Figure to see how the magnitude of the change in producer surplus is represented. Importing Country Government - The government receives tariff revenue as a result of the tariff. Who benefits from the revenue depends on how the government spends it. Typically the revenue is simply included as part of the general funds collected by the government from various sources. In this case it is impossible to identify precisely who benefits. However, these funds help support many government spending programs which presumably help either most people in the country, as is the case with public goods, or is targeted at certain worthy groups. | 2,082 | 3,283 |
msmarco_v2.1_doc_01_1671387231#5_2452243297 | http://internationalecon.com/Trade/Tch90/T90-8.php | Trade: Chapter 90-8: Welfare Effects of a Tariff: Large Country | Welfare Effects of a Tariff: Large Country
Welfare Effects of a Tariff: Large Country | Importing Country Government - The government receives tariff revenue as a result of the tariff. Who benefits from the revenue depends on how the government spends it. Typically the revenue is simply included as part of the general funds collected by the government from various sources. In this case it is impossible to identify precisely who benefits. However, these funds help support many government spending programs which presumably help either most people in the country, as is the case with public goods, or is targeted at certain worthy groups. Thus, someone within the country is the likely recipient of these benefits. Refer to the Table and Figure to see how the magnitude of the tariff revenue is represented. Importing Country - The aggregate welfare effect for the country is found by summing the gains and losses to consumers, producers and the government. The net effect consists of three components: a positive terms of trade effect (G), a negative production distortion (B), and a negative consumption distortion (D). | 2,729 | 3,766 |
msmarco_v2.1_doc_01_1671387231#6_2452244682 | http://internationalecon.com/Trade/Tch90/T90-8.php | Trade: Chapter 90-8: Welfare Effects of a Tariff: Large Country | Welfare Effects of a Tariff: Large Country
Welfare Effects of a Tariff: Large Country | Thus, someone within the country is the likely recipient of these benefits. Refer to the Table and Figure to see how the magnitude of the tariff revenue is represented. Importing Country - The aggregate welfare effect for the country is found by summing the gains and losses to consumers, producers and the government. The net effect consists of three components: a positive terms of trade effect (G), a negative production distortion (B), and a negative consumption distortion (D). Refer to the Table and Figure to see how the magnitude of the change in national welfare is represented. Because there are both positive and negative elements, the net national welfare effect can be either positive or negative. The interesting result, however, is that it can be positive. This means that a tariff implemented by a "large" importing country may raise national welfare. Generally speaking,
1) whenever a "large" country implements a small tariff, it will raise national welfare. | 3,284 | 4,260 |
msmarco_v2.1_doc_01_1671387231#7_2452246012 | http://internationalecon.com/Trade/Tch90/T90-8.php | Trade: Chapter 90-8: Welfare Effects of a Tariff: Large Country | Welfare Effects of a Tariff: Large Country
Welfare Effects of a Tariff: Large Country | Refer to the Table and Figure to see how the magnitude of the change in national welfare is represented. Because there are both positive and negative elements, the net national welfare effect can be either positive or negative. The interesting result, however, is that it can be positive. This means that a tariff implemented by a "large" importing country may raise national welfare. Generally speaking,
1) whenever a "large" country implements a small tariff, it will raise national welfare. 2) if the tariff is set too high, national welfare will fall
and 3) there will be a positive optimal tariff that will maximize national welfare. Click here for more information about optimal tariffs. However, it is also important to note that everyone's welfare does not rise when there is an increase in national welfare. Instead there is a redistribution of income. Producers of the product and recipients of government spending will benefit, but consumers will lose. | 3,767 | 4,730 |
msmarco_v2.1_doc_01_1671387231#8_2452247330 | http://internationalecon.com/Trade/Tch90/T90-8.php | Trade: Chapter 90-8: Welfare Effects of a Tariff: Large Country | Welfare Effects of a Tariff: Large Country
Welfare Effects of a Tariff: Large Country | 2) if the tariff is set too high, national welfare will fall
and 3) there will be a positive optimal tariff that will maximize national welfare. Click here for more information about optimal tariffs. However, it is also important to note that everyone's welfare does not rise when there is an increase in national welfare. Instead there is a redistribution of income. Producers of the product and recipients of government spending will benefit, but consumers will lose. A national welfare increase, then, means that the sum of the gains exceeds the sum of the losses across all individuals in the economy. Economists generally argue that, in this case, compensation from winners to losers can potentially alleviate the redistribution problem. Click here to learn more about the compensation principle. Tariff Effects on: Exporting Country Consumers - Consumers of the product in the exporting country experience an increase in well-being as a result of the tariff. | 4,260 | 5,225 |
msmarco_v2.1_doc_01_1671387231#9_2452248644 | http://internationalecon.com/Trade/Tch90/T90-8.php | Trade: Chapter 90-8: Welfare Effects of a Tariff: Large Country | Welfare Effects of a Tariff: Large Country
Welfare Effects of a Tariff: Large Country | A national welfare increase, then, means that the sum of the gains exceeds the sum of the losses across all individuals in the economy. Economists generally argue that, in this case, compensation from winners to losers can potentially alleviate the redistribution problem. Click here to learn more about the compensation principle. Tariff Effects on: Exporting Country Consumers - Consumers of the product in the exporting country experience an increase in well-being as a result of the tariff. The decrease in their domestic price raises the amount of consumer surplus in the market. Refer to the Table and Figure to see how the magnitude of the change in consumer surplus is represented. Exporting Country Producers - Producers in the exporting country experience a decrease in well-being as a result of the tariff. The decrease in the price of their product in their own market decreases producer surplus in the industry. The price decline also induces a decrease in output, a decrease in employment, and a decrease in profit and/or payments to fixed costs. | 4,731 | 5,791 |
msmarco_v2.1_doc_01_1671387231#10_2452250053 | http://internationalecon.com/Trade/Tch90/T90-8.php | Trade: Chapter 90-8: Welfare Effects of a Tariff: Large Country | Welfare Effects of a Tariff: Large Country
Welfare Effects of a Tariff: Large Country | The decrease in their domestic price raises the amount of consumer surplus in the market. Refer to the Table and Figure to see how the magnitude of the change in consumer surplus is represented. Exporting Country Producers - Producers in the exporting country experience a decrease in well-being as a result of the tariff. The decrease in the price of their product in their own market decreases producer surplus in the industry. The price decline also induces a decrease in output, a decrease in employment, and a decrease in profit and/or payments to fixed costs. Refer to the Table and Figure to see how the magnitude of the change in producer surplus is represented. Exporting Country Government - There is no effect on the exporting country government revenue as a result of the importer's tariff. Exporting Country - The aggregate welfare effect for the country is found by summing the gains and losses to consumers and producers. The net effect consists of three components: a negative terms of trade effect (g), a negative consumption distortion (f), and a negative production distortion (h). | 5,226 | 6,326 |
msmarco_v2.1_doc_01_1671387231#11_2452251503 | http://internationalecon.com/Trade/Tch90/T90-8.php | Trade: Chapter 90-8: Welfare Effects of a Tariff: Large Country | Welfare Effects of a Tariff: Large Country
Welfare Effects of a Tariff: Large Country | Refer to the Table and Figure to see how the magnitude of the change in producer surplus is represented. Exporting Country Government - There is no effect on the exporting country government revenue as a result of the importer's tariff. Exporting Country - The aggregate welfare effect for the country is found by summing the gains and losses to consumers and producers. The net effect consists of three components: a negative terms of trade effect (g), a negative consumption distortion (f), and a negative production distortion (h). Refer to the Table and Figure to see how the magnitude of the change in national welfare is represented. Since all three components are negative, the importer's tariff must result in a reduction in national welfare for the exporting country. However, it is important to note that a redistribution of income occurs, i.e., some groups gain while others lose. In this case the sum of the losses exceeds the sum of the gains. Tariff Effects on: | 5,792 | 6,767 |
msmarco_v2.1_doc_01_1671387231#12_2452252828 | http://internationalecon.com/Trade/Tch90/T90-8.php | Trade: Chapter 90-8: Welfare Effects of a Tariff: Large Country | Welfare Effects of a Tariff: Large Country
Welfare Effects of a Tariff: Large Country | Refer to the Table and Figure to see how the magnitude of the change in national welfare is represented. Since all three components are negative, the importer's tariff must result in a reduction in national welfare for the exporting country. However, it is important to note that a redistribution of income occurs, i.e., some groups gain while others lose. In this case the sum of the losses exceeds the sum of the gains. Tariff Effects on: World Welfare - The effect on world welfare is found by summing the national welfare effects in the importing and exporting countries. By noting that the terms of trade gain to the importer is equal to the terms of trade loss to the exporter, the world welfare effect reduces to four components: the importer's negative production distortion (B), the importer's negative consumption distortion (D), the exporter's negative consumption distortion (f), and the exporter's negative production distortion (h). Since each of these is negative, the world welfare effect of the import tariff is negative. The sum of the losses in the world exceeds the sum of the gains. | 6,327 | 7,430 |
msmarco_v2.1_doc_01_1671387231#13_2452254281 | http://internationalecon.com/Trade/Tch90/T90-8.php | Trade: Chapter 90-8: Welfare Effects of a Tariff: Large Country | Welfare Effects of a Tariff: Large Country
Welfare Effects of a Tariff: Large Country | World Welfare - The effect on world welfare is found by summing the national welfare effects in the importing and exporting countries. By noting that the terms of trade gain to the importer is equal to the terms of trade loss to the exporter, the world welfare effect reduces to four components: the importer's negative production distortion (B), the importer's negative consumption distortion (D), the exporter's negative consumption distortion (f), and the exporter's negative production distortion (h). Since each of these is negative, the world welfare effect of the import tariff is negative. The sum of the losses in the world exceeds the sum of the gains. In other words, we can say that an import tariff results in a reduction in world production and consumption efficiency. International Trade Theory and Policy - Chapter 90-8: Last Updated on 8/20/04 | 6,767 | 7,628 |
msmarco_v2.1_doc_01_1671395225#0_2452255491 | http://internationalecon.com/wto/ch2.php | Chapter 2: The Dispute Resolution Mechanism | Chapter 2
The Dispute Resolution Mechanism
Chapter 2
The Dispute Resolution Mechanism | Chapter 2: The Dispute Resolution Mechanism
Chapter 2
The Dispute Resolution Mechanism
INTRODUCTION TO WTO DISPUTE RESOLUTION
The WTO's Dispute Settlement Understanding (DSU) evolved out of the ineffective means used under the GATT for settling disagreements among members. Under the GATT, procedures for settling disputes were ineffective and time consuming since a single nation, including the nation who's actions were the subject of complaint, could effectively block or delay every stage of the dispute resolution process. ( 1) It remains to be seen whether countries will comply with the new WTO dispute settlement mechanism, but thus far the process has met with relative success. The DSU was designed to deal with the complexity of reducing and eliminating non-tariff barriers to trade. A non-tariff trade barrier can be almost any government policy or regulation that has the effect of making it more difficult or costly for foreign competitors to do business in a country. In the early years of the GATT, most of the progress in reducing trade barriers focused on trade in goods and in reducing or eliminating the tariff levels on those goods. More recently, tariffs have been all but eliminated in a wide variety of sectors. This has meant that non-tariff trade barriers have become more important since, in the absence of tariffs, only such barriers significantly distort the overall pattern of trade-liberalization. Frequently, such non-tariff trade barriers are the inadvertent consequence of well meaning attempts to regulate to ensure safety or protection for the environment, or other public policy goals. | 0 | 1,644 |
msmarco_v2.1_doc_01_1671395225#1_2452257483 | http://internationalecon.com/wto/ch2.php | Chapter 2: The Dispute Resolution Mechanism | Chapter 2
The Dispute Resolution Mechanism
Chapter 2
The Dispute Resolution Mechanism | A non-tariff trade barrier can be almost any government policy or regulation that has the effect of making it more difficult or costly for foreign competitors to do business in a country. In the early years of the GATT, most of the progress in reducing trade barriers focused on trade in goods and in reducing or eliminating the tariff levels on those goods. More recently, tariffs have been all but eliminated in a wide variety of sectors. This has meant that non-tariff trade barriers have become more important since, in the absence of tariffs, only such barriers significantly distort the overall pattern of trade-liberalization. Frequently, such non-tariff trade barriers are the inadvertent consequence of well meaning attempts to regulate to ensure safety or protection for the environment, or other public policy goals. In other cases, countries have been suspected of deliberately creating such regulations under the guise of regulatory intent, but which have the effect of protecting domestic industries from open international competition, to the detriment of the international free-trade regime. The WTO's strengthened dispute resolution mechanism was designed to have the authority to sort out this "fine line between national prerogatives and unacceptable trade restrictions" (2) Several of the supplemental agreements to the GATT created during the Uruguay Round, such as the SPS Agreement, sought to specify the conditions under which national regulations were permissible even if they had the effect of restraining trade. The United States, perhaps more than any other country, has found itself on both sides of this delicate balance. In 1988, it was the United States who pushed for strengthening the Dispute Settlement provisions of the GATT during the Uruguay Round, in part because Congress was not convinced that, "the GATT, as it stood, could offer the United States an equitable balance of advantage." ( 3) The concern was that formal concessions granted to U.S. exports going into other countries would be eroded by hidden barriers to trade. | 817 | 2,882 |
msmarco_v2.1_doc_01_1671395225#2_2452259875 | http://internationalecon.com/wto/ch2.php | Chapter 2: The Dispute Resolution Mechanism | Chapter 2
The Dispute Resolution Mechanism
Chapter 2
The Dispute Resolution Mechanism | In other cases, countries have been suspected of deliberately creating such regulations under the guise of regulatory intent, but which have the effect of protecting domestic industries from open international competition, to the detriment of the international free-trade regime. The WTO's strengthened dispute resolution mechanism was designed to have the authority to sort out this "fine line between national prerogatives and unacceptable trade restrictions" (2) Several of the supplemental agreements to the GATT created during the Uruguay Round, such as the SPS Agreement, sought to specify the conditions under which national regulations were permissible even if they had the effect of restraining trade. The United States, perhaps more than any other country, has found itself on both sides of this delicate balance. In 1988, it was the United States who pushed for strengthening the Dispute Settlement provisions of the GATT during the Uruguay Round, in part because Congress was not convinced that, "the GATT, as it stood, could offer the United States an equitable balance of advantage." ( 3) The concern was that formal concessions granted to U.S. exports going into other countries would be eroded by hidden barriers to trade. On the other hand, the United States harbors reservations in regards to its sovereignty, with much of the negative reaction to the WTO itself centered around the concern that U.S. laws and regulations may be reversed by the DSU panels or the Appellate Body. Critics argued that the WTO would "compel Congress and our states to abandon many health and environmental standards" if they were at odds with international trade rules. ( 4) Particularly, these critics noted that the United States would not have a veto in the WTO and that each nation would have an equal say in the DSB, which ultimately votes to adopt or reject panel reports. They further noted that the Appellate Body and the dispute settlement panels vote in secret, and that they could authorize nations to retaliate against violations of the trade agreements with unilateral sanctions. It was argued by some that the cumulative effect of WTO dispute panel decisions would be to erode the sovereignty of the United States. | 1,645 | 3,869 |
msmarco_v2.1_doc_01_1671395225#3_2452262430 | http://internationalecon.com/wto/ch2.php | Chapter 2: The Dispute Resolution Mechanism | Chapter 2
The Dispute Resolution Mechanism
Chapter 2
The Dispute Resolution Mechanism | On the other hand, the United States harbors reservations in regards to its sovereignty, with much of the negative reaction to the WTO itself centered around the concern that U.S. laws and regulations may be reversed by the DSU panels or the Appellate Body. Critics argued that the WTO would "compel Congress and our states to abandon many health and environmental standards" if they were at odds with international trade rules. ( 4) Particularly, these critics noted that the United States would not have a veto in the WTO and that each nation would have an equal say in the DSB, which ultimately votes to adopt or reject panel reports. They further noted that the Appellate Body and the dispute settlement panels vote in secret, and that they could authorize nations to retaliate against violations of the trade agreements with unilateral sanctions. It was argued by some that the cumulative effect of WTO dispute panel decisions would be to erode the sovereignty of the United States. One of the purposes of this review is to assess the validity of this claim in light of the actual functioning of the WTO system over the last three years. OVERVIEW OF THE DISPUTE SETTLEMENT UNDERSTANDING
The Dispute Settlement Understanding (DSU), formally known as the Understanding on Rules and Procedures Governing the Settlement of Disputes, establishes rules and procedures that manage various disputes arising under the Covered Agreements of the Final Act of the Uruguay Round. ( 5) All WTO member nation-states are subject to it and are the only legal entities that may bring and file cases to the WTO. The DSU created the Dispute Settlement Body (DSB), consisting of all WTO members, which administers dispute settlement procedures. ( 6) It provides strict time frames for the dispute settlement process (7) and establishes an appeals system to standardize the interpretation of specific clauses of the agreements. ( | 2,883 | 4,792 |
msmarco_v2.1_doc_01_1671395225#4_2452264668 | http://internationalecon.com/wto/ch2.php | Chapter 2: The Dispute Resolution Mechanism | Chapter 2
The Dispute Resolution Mechanism
Chapter 2
The Dispute Resolution Mechanism | One of the purposes of this review is to assess the validity of this claim in light of the actual functioning of the WTO system over the last three years. OVERVIEW OF THE DISPUTE SETTLEMENT UNDERSTANDING
The Dispute Settlement Understanding (DSU), formally known as the Understanding on Rules and Procedures Governing the Settlement of Disputes, establishes rules and procedures that manage various disputes arising under the Covered Agreements of the Final Act of the Uruguay Round. ( 5) All WTO member nation-states are subject to it and are the only legal entities that may bring and file cases to the WTO. The DSU created the Dispute Settlement Body (DSB), consisting of all WTO members, which administers dispute settlement procedures. ( 6) It provides strict time frames for the dispute settlement process (7) and establishes an appeals system to standardize the interpretation of specific clauses of the agreements. ( 8) It also provides for the automatic establishment of a panel and automatic adoption of a panel report to prevent nations from stopping action by simply ignoring complaints. ( 9) Strengthened rules and procedures with strict time limits for the dispute settlement process aim at providing "security and predictability to the multilateral trading system" (10) and achieving " [a] solution mutually acceptable to the parties to a dispute and consistent with the covered agreements." ( 11) The basic stages of dispute resolution covered in the understanding include consultation, good offices, conciliation and mediation, a panel phase, Appellate Body review, and remedies. ( 12)
Consultation
A member-country may request consultations when it considers another member- country to have "infringed upon the obligations assumed under a Covered Agreement." ( 13) If the respondent fails to respond within ten days or enter into consultations within thirty days, the complaint "may proceed directly to request the establishment of a panel." ( | 3,870 | 5,824 |
msmarco_v2.1_doc_01_1671395225#5_2452266963 | http://internationalecon.com/wto/ch2.php | Chapter 2: The Dispute Resolution Mechanism | Chapter 2
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Chapter 2
The Dispute Resolution Mechanism | 8) It also provides for the automatic establishment of a panel and automatic adoption of a panel report to prevent nations from stopping action by simply ignoring complaints. ( 9) Strengthened rules and procedures with strict time limits for the dispute settlement process aim at providing "security and predictability to the multilateral trading system" (10) and achieving " [a] solution mutually acceptable to the parties to a dispute and consistent with the covered agreements." ( 11) The basic stages of dispute resolution covered in the understanding include consultation, good offices, conciliation and mediation, a panel phase, Appellate Body review, and remedies. ( 12)
Consultation
A member-country may request consultations when it considers another member- country to have "infringed upon the obligations assumed under a Covered Agreement." ( 13) If the respondent fails to respond within ten days or enter into consultations within thirty days, the complaint "may proceed directly to request the establishment of a panel." ( 14)
Good Offices, Conciliation and Mediation
Unlike consultation in which "a complainant has the power to force a respondent to reply and consult or face a panel," (15) good offices, conciliation and mediation "are undertaken voluntarily if the parties to the dispute so agree." ( 16) No requirements on form, time, or procedure for them exist. ( 17) Any party may initiate or terminate them at any time. ( 18) The complaining party may request the formation of panel, "if the parties to the dispute jointly consider that the good offices, conciliation or mediation process has failed to settle the dispute." ( 19) Thus the DSU recognized that what was important was that the nations involved in a dispute come to a workable understanding on how to proceed, and that sometimes the formal WTO dispute resolution process would not be the best way to find such an accord. | 4,792 | 6,688 |
msmarco_v2.1_doc_01_1671395225#6_2452269209 | http://internationalecon.com/wto/ch2.php | Chapter 2: The Dispute Resolution Mechanism | Chapter 2
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The Dispute Resolution Mechanism | 14)
Good Offices, Conciliation and Mediation
Unlike consultation in which "a complainant has the power to force a respondent to reply and consult or face a panel," (15) good offices, conciliation and mediation "are undertaken voluntarily if the parties to the dispute so agree." ( 16) No requirements on form, time, or procedure for them exist. ( 17) Any party may initiate or terminate them at any time. ( 18) The complaining party may request the formation of panel, "if the parties to the dispute jointly consider that the good offices, conciliation or mediation process has failed to settle the dispute." ( 19) Thus the DSU recognized that what was important was that the nations involved in a dispute come to a workable understanding on how to proceed, and that sometimes the formal WTO dispute resolution process would not be the best way to find such an accord. Still, no nation could simply ignore its obligations under international trade agreements without taking the risk that a WTO panel would take note of its behavior. Panel Phase
If consultation, good offices, conciliation or mediation fails to settle the dispute, the complaining party may request the formation of panel. The DSB (20) shall form a panel, "unless at that meeting the DSB decides by consensus not to establish a panel." ( 21) "Panels shall be composed of well-qualified governmental and/or non-governmental individuals" (22) "with a view to ensuring the independence of the members," (23) and whose governments are not the parties to the dispute, "unless the parties to the dispute agree otherwise." ( 24) Three panelists compose a panel unless the parties agree to have five panelists. ( | 5,824 | 7,488 |
msmarco_v2.1_doc_01_1671395225#7_2452271219 | http://internationalecon.com/wto/ch2.php | Chapter 2: The Dispute Resolution Mechanism | Chapter 2
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The Dispute Resolution Mechanism | Still, no nation could simply ignore its obligations under international trade agreements without taking the risk that a WTO panel would take note of its behavior. Panel Phase
If consultation, good offices, conciliation or mediation fails to settle the dispute, the complaining party may request the formation of panel. The DSB (20) shall form a panel, "unless at that meeting the DSB decides by consensus not to establish a panel." ( 21) "Panels shall be composed of well-qualified governmental and/or non-governmental individuals" (22) "with a view to ensuring the independence of the members," (23) and whose governments are not the parties to the dispute, "unless the parties to the dispute agree otherwise." ( 24) Three panelists compose a panel unless the parties agree to have five panelists. ( 25)
The Secretariat proposes nominations for panels that the parties shall not oppose "except for compelling reasons." ( 26) If the parties disagree on the panelists, upon the request of either party, "the director-general in consultation with the chairman of the DSB and the chairman of the relevant council or committees" (27) shall appoint the panelists. When multiple parties request the establishment of a panel with regard to the same matter, the DSU suggests a strong preference for a single panel to be established "to examine these complaints taking into account the rights of all members concerned." ( 28) The DSU gives any member that has "a substantial interest in a matter before a panel" (29) (and notifies "its interest to the DSB" (30)) an opportunity "to be heard by the panel and to make written submissions to the panel." ( 31)
"The panel shall submit its findings in the form of written report to the DSB." ( | 6,689 | 8,413 |
msmarco_v2.1_doc_01_1671395225#8_2452273297 | http://internationalecon.com/wto/ch2.php | Chapter 2: The Dispute Resolution Mechanism | Chapter 2
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The Dispute Resolution Mechanism | 25)
The Secretariat proposes nominations for panels that the parties shall not oppose "except for compelling reasons." ( 26) If the parties disagree on the panelists, upon the request of either party, "the director-general in consultation with the chairman of the DSB and the chairman of the relevant council or committees" (27) shall appoint the panelists. When multiple parties request the establishment of a panel with regard to the same matter, the DSU suggests a strong preference for a single panel to be established "to examine these complaints taking into account the rights of all members concerned." ( 28) The DSU gives any member that has "a substantial interest in a matter before a panel" (29) (and notifies "its interest to the DSB" (30)) an opportunity "to be heard by the panel and to make written submissions to the panel." ( 31)
"The panel shall submit its findings in the form of written report to the DSB." ( 32) As a general rule, it shall not exceed six months from the formation of the panel to submission of the report to the DSB. ( 33) In interim review stage, (34) the panel submits an interim report to the parties. The panel "shall hold a further meeting with the parties" (35) if the parties present written comments. If no comments are provided by the parties within the comment period, the "report shall be the final report and circulated promptly to the members." ( 36) Within sixty days after the report is circulated to the members, "the report shall be adopted at a DSB meeting unless a party to the dispute formally notifies the DSB of its decision to appeal or the DSB decides by consensus not to adapt the report." ( | 7,488 | 9,136 |
msmarco_v2.1_doc_01_1671395225#9_2452275296 | http://internationalecon.com/wto/ch2.php | Chapter 2: The Dispute Resolution Mechanism | Chapter 2
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Chapter 2
The Dispute Resolution Mechanism | 32) As a general rule, it shall not exceed six months from the formation of the panel to submission of the report to the DSB. ( 33) In interim review stage, (34) the panel submits an interim report to the parties. The panel "shall hold a further meeting with the parties" (35) if the parties present written comments. If no comments are provided by the parties within the comment period, the "report shall be the final report and circulated promptly to the members." ( 36) Within sixty days after the report is circulated to the members, "the report shall be adopted at a DSB meeting unless a party to the dispute formally notifies the DSB of its decision to appeal or the DSB decides by consensus not to adapt the report." ( 37)
Appellate Body Review
The DSB establishes a standing Appellate Body that will hear the appeals from panel cases. The Appellate Body "shall be composed of seven persons, three of whom shall serve on any one case." ( 38) Those persons serving on the Appellate Body are to be "persons of recognized authority, with demonstrated expertise in law, international trade and the subject matter of the Covered Agreements generally." ( 39) The Body shall consider only "issues of law covered in the panel report and legal interpretations developed by the panel." ( 40) Its proceedings shall be confidential, and its reports anonymous. ( | 8,413 | 9,763 |
msmarco_v2.1_doc_01_1671395225#10_2452276989 | http://internationalecon.com/wto/ch2.php | Chapter 2: The Dispute Resolution Mechanism | Chapter 2
The Dispute Resolution Mechanism
Chapter 2
The Dispute Resolution Mechanism | 37)
Appellate Body Review
The DSB establishes a standing Appellate Body that will hear the appeals from panel cases. The Appellate Body "shall be composed of seven persons, three of whom shall serve on any one case." ( 38) Those persons serving on the Appellate Body are to be "persons of recognized authority, with demonstrated expertise in law, international trade and the subject matter of the Covered Agreements generally." ( 39) The Body shall consider only "issues of law covered in the panel report and legal interpretations developed by the panel." ( 40) Its proceedings shall be confidential, and its reports anonymous. ( 41) This provision is important because, unlike judges in the United States, the members of the appellate panel do not serve for life. This means that if their decisions were public, they would be subject to personal retaliation by gover | 9,136 | 10,000 |
msmarco_v2.1_doc_01_1671451506#0_2452278190 | http://internationaleczema-psoriasisfoundation.org/dyshidrotic_eczema.php4 | DYSHIDROTIC ECZEMA - Eczema Treatment | DYSHIDROTIC ECZEMA
DYSHIDROTIC ECZEMA
Possible triggers:
| DYSHIDROTIC ECZEMA - Eczema Treatment
DYSHIDROTIC ECZEMA
Dyshidrotic eczema appears as intensely itchy blisters on the hands, fingers and soles of the feet. When it affects the hands it’s called cheiropompholyx and pedopompholyx when it affects the feet. It is also known as pompholyx, keratolysis exfoliativa, or vesicular eczema of the hands and/or feet. The term pompholyx (Greek "bubble") is generally reserved for the cases of deep-seated itching blisters. Generally associated with, but not caused by, excessive sweating (hyperhydrosis). The cause of this pattern of eczema is not fully understood but in some cases there is a history of allergic contact dermatitis especially to nickel. Very often no specific allergen is found despite extensive patch testing. This form of eczema is aggravated by stress. Oral antihistamines help to alleviate the intense itch. Frequently applied calamine lotion helps to cool the affected skin. | 0 | 969 |
msmarco_v2.1_doc_01_1671451506#1_2452279488 | http://internationaleczema-psoriasisfoundation.org/dyshidrotic_eczema.php4 | DYSHIDROTIC ECZEMA - Eczema Treatment | DYSHIDROTIC ECZEMA
DYSHIDROTIC ECZEMA
Possible triggers:
| The cause of this pattern of eczema is not fully understood but in some cases there is a history of allergic contact dermatitis especially to nickel. Very often no specific allergen is found despite extensive patch testing. This form of eczema is aggravated by stress. Oral antihistamines help to alleviate the intense itch. Frequently applied calamine lotion helps to cool the affected skin. For the best treatment for dyshidrotic eczema we recommend using Eczema-Ltd III
The condition is characterized by the sudden onset (1-3 days) of deep-seated, clear blisters. In the later stages, scaling, thickening, and painful fissuring typically occur. Secondary bacterial infection is very often a complication with dyshidrotic eczema. In many patients, the condition worsens during the summer months. Hand eczema occurs most frequently in persons who frequently have their hands immersed in water, such as food preparers, nurses, or florists. | 561 | 1,537 |
msmarco_v2.1_doc_01_1671451506#2_2452280787 | http://internationaleczema-psoriasisfoundation.org/dyshidrotic_eczema.php4 | DYSHIDROTIC ECZEMA - Eczema Treatment | DYSHIDROTIC ECZEMA
DYSHIDROTIC ECZEMA
Possible triggers:
| For the best treatment for dyshidrotic eczema we recommend using Eczema-Ltd III
The condition is characterized by the sudden onset (1-3 days) of deep-seated, clear blisters. In the later stages, scaling, thickening, and painful fissuring typically occur. Secondary bacterial infection is very often a complication with dyshidrotic eczema. In many patients, the condition worsens during the summer months. Hand eczema occurs most frequently in persons who frequently have their hands immersed in water, such as food preparers, nurses, or florists. The warm, moist conditions in shoes provide an ideal situation in which foot dermatitis may also flourish. These eruptions often become chronic and can be severe. Chronic hand-and-foot eczema is similar to other forms of dermatitis in appearance. Dyshidrotic dermatitis (pompholyx) is a form of hand eczema more common in women which starts on the sides of the fingers as itchy little bumps and then develops into a rash. The condition can also affect only the feet. | 970 | 2,025 |
msmarco_v2.1_doc_01_1671451506#3_2452282166 | http://internationaleczema-psoriasisfoundation.org/dyshidrotic_eczema.php4 | DYSHIDROTIC ECZEMA - Eczema Treatment | DYSHIDROTIC ECZEMA
DYSHIDROTIC ECZEMA
Possible triggers:
| The warm, moist conditions in shoes provide an ideal situation in which foot dermatitis may also flourish. These eruptions often become chronic and can be severe. Chronic hand-and-foot eczema is similar to other forms of dermatitis in appearance. Dyshidrotic dermatitis (pompholyx) is a form of hand eczema more common in women which starts on the sides of the fingers as itchy little bumps and then develops into a rash. The condition can also affect only the feet. Some patients have involvement of both the hands and feet. Hand eczema is the general term used to describe a variety of skin irritations that your hands can develop. You may have itchy, scaly patches of skin that flake constantly. Or your hands may become red, cracked and painful. In some cases, the rash worsens into weepy bumps. | 1,538 | 2,370 |
msmarco_v2.1_doc_01_1671451506#4_2452283322 | http://internationaleczema-psoriasisfoundation.org/dyshidrotic_eczema.php4 | DYSHIDROTIC ECZEMA - Eczema Treatment | DYSHIDROTIC ECZEMA
DYSHIDROTIC ECZEMA
Possible triggers:
| Some patients have involvement of both the hands and feet. Hand eczema is the general term used to describe a variety of skin irritations that your hands can develop. You may have itchy, scaly patches of skin that flake constantly. Or your hands may become red, cracked and painful. In some cases, the rash worsens into weepy bumps. These problems can happen to anyone at any time of life, but they are more likely: If you had similar skin problems, hay fever or other allergies as a child. ( Doctors call this set of symptoms "atopy.") If your hands get wet a lot, whether at home, work or play. If your job exposes your hands to irritating chemicals. | 2,026 | 2,698 |
msmarco_v2.1_doc_01_1671451506#5_2452284318 | http://internationaleczema-psoriasisfoundation.org/dyshidrotic_eczema.php4 | DYSHIDROTIC ECZEMA - Eczema Treatment | DYSHIDROTIC ECZEMA
DYSHIDROTIC ECZEMA
Possible triggers:
| These problems can happen to anyone at any time of life, but they are more likely: If you had similar skin problems, hay fever or other allergies as a child. ( Doctors call this set of symptoms "atopy.") If your hands get wet a lot, whether at home, work or play. If your job exposes your hands to irritating chemicals. Dishpan hands are actually a form of hand eczema. It occurs because constant wetting and drying breaks down the skin's protective outer barrier. If you already have hand eczema or are recovering from an episode, you need to avoid getting water on your hands so often. Perfumes and preservatives in soaps and irritants in household cleansers can make things worse. Unfortunately, there is no quick and easy solution to hand eczema. | 2,371 | 3,144 |
msmarco_v2.1_doc_01_1671451506#6_2452285415 | http://internationaleczema-psoriasisfoundation.org/dyshidrotic_eczema.php4 | DYSHIDROTIC ECZEMA - Eczema Treatment | DYSHIDROTIC ECZEMA
DYSHIDROTIC ECZEMA
Possible triggers:
| Dishpan hands are actually a form of hand eczema. It occurs because constant wetting and drying breaks down the skin's protective outer barrier. If you already have hand eczema or are recovering from an episode, you need to avoid getting water on your hands so often. Perfumes and preservatives in soaps and irritants in household cleansers can make things worse. Unfortunately, there is no quick and easy solution to hand eczema. Clearing up an episode of the condition can take several months, and you'll need to continue babying your hands for as long as a year even though they appear eczema-free. The exact cause is not known. Dyshidrotic eczema often appears during times of stress. People who have dyshidrotic eczema are genetically predisposed to it. Some consider it is caused by abnormal sweating. | 2,698 | 3,536 |
msmarco_v2.1_doc_01_1671451506#7_2452286576 | http://internationaleczema-psoriasisfoundation.org/dyshidrotic_eczema.php4 | DYSHIDROTIC ECZEMA - Eczema Treatment | DYSHIDROTIC ECZEMA
DYSHIDROTIC ECZEMA
Possible triggers:
| Clearing up an episode of the condition can take several months, and you'll need to continue babying your hands for as long as a year even though they appear eczema-free. The exact cause is not known. Dyshidrotic eczema often appears during times of stress. People who have dyshidrotic eczema are genetically predisposed to it. Some consider it is caused by abnormal sweating. The condition may be mild with only a little peeling, or very severe with big blisters and cracks which prevent work. The first (acute) stage shows tiny blisters (vesicles) deep in the skin, associated with itching and a burning feeling. The later and more chronic stage shows more peeling, cracking, or crusting. Some patients will have mostly one stage, and some patients will have mostly the other. Some times both stages occur at the same time. | 3,145 | 4,006 |
msmarco_v2.1_doc_01_1671451506#8_2452287761 | http://internationaleczema-psoriasisfoundation.org/dyshidrotic_eczema.php4 | DYSHIDROTIC ECZEMA - Eczema Treatment | DYSHIDROTIC ECZEMA
DYSHIDROTIC ECZEMA
Possible triggers:
| The condition may be mild with only a little peeling, or very severe with big blisters and cracks which prevent work. The first (acute) stage shows tiny blisters (vesicles) deep in the skin, associated with itching and a burning feeling. The later and more chronic stage shows more peeling, cracking, or crusting. Some patients will have mostly one stage, and some patients will have mostly the other. Some times both stages occur at the same time. Secondary infection with staphylococcal bacteria is not infrequent. The result is pain, redness, swelling and crusting or pustules. As in other forms of hand eczema, pompholyx is aggravated by contact with irritants such as soapy water, detergents and solvents. Contact with them must be avoided as much as possible and protective gloves worn. Some people with pompholyx are found to be allergic to nickel, a common metal. | 3,537 | 4,441 |
msmarco_v2.1_doc_01_1671451506#9_2452288989 | http://internationaleczema-psoriasisfoundation.org/dyshidrotic_eczema.php4 | DYSHIDROTIC ECZEMA - Eczema Treatment | DYSHIDROTIC ECZEMA
DYSHIDROTIC ECZEMA
Possible triggers:
| Secondary infection with staphylococcal bacteria is not infrequent. The result is pain, redness, swelling and crusting or pustules. As in other forms of hand eczema, pompholyx is aggravated by contact with irritants such as soapy water, detergents and solvents. Contact with them must be avoided as much as possible and protective gloves worn. Some people with pompholyx are found to be allergic to nickel, a common metal. Nickel allergy can be detected by patch testing. These patients must try not to touch nickel items. Pompholyx often runs a chronic course, but may go away for long periods. It often reappears after a period of nervous tension, worry or stress. Unfortunately pompholyx does not have any quick sure cure. | 4,007 | 4,756 |
msmarco_v2.1_doc_01_1671451506#10_2452290059 | http://internationaleczema-psoriasisfoundation.org/dyshidrotic_eczema.php4 | DYSHIDROTIC ECZEMA - Eczema Treatment | DYSHIDROTIC ECZEMA
DYSHIDROTIC ECZEMA
Possible triggers:
| Nickel allergy can be detected by patch testing. These patients must try not to touch nickel items. Pompholyx often runs a chronic course, but may go away for long periods. It often reappears after a period of nervous tension, worry or stress. Unfortunately pompholyx does not have any quick sure cure. Possible triggers: Deodorant soaps and strong detergents. extremely stressful situations. Rubber or latex gloves next to the skin. If you must wear gloves, be sure to wear a cotton liner under them. | 4,442 | 4,961 |
msmarco_v2.1_doc_01_1671451506#11_2452290900 | http://internationaleczema-psoriasisfoundation.org/dyshidrotic_eczema.php4 | DYSHIDROTIC ECZEMA - Eczema Treatment | DYSHIDROTIC ECZEMA
DYSHIDROTIC ECZEMA
Possible triggers:
| Possible triggers: Deodorant soaps and strong detergents. extremely stressful situations. Rubber or latex gloves next to the skin. If you must wear gloves, be sure to wear a cotton liner under them. Clearing up your hand eczema depends largely on how you change your day-to-day habits. These changes may be difficult, and that's why we've gathered together this collection of tips for living with hand eczema to make the process easier for you: After using the toilet, wash your hands with lukewarm water and a perfume-free cleanser such as Cetaphil® ‘Moisturizing Gentle Cleansing Bar for Dry Sensitive Skin”. Sometimes oral antihistamine pills (Benadryl) can help relieve the itching. When you do wash your hands, blot them dry gently and immediately apply a moisturizer. | 4,756 | 5,557 |
msmarco_v2.1_doc_01_1671451506#12_2452292040 | http://internationaleczema-psoriasisfoundation.org/dyshidrotic_eczema.php4 | DYSHIDROTIC ECZEMA - Eczema Treatment | DYSHIDROTIC ECZEMA
DYSHIDROTIC ECZEMA
Possible triggers:
| Clearing up your hand eczema depends largely on how you change your day-to-day habits. These changes may be difficult, and that's why we've gathered together this collection of tips for living with hand eczema to make the process easier for you: After using the toilet, wash your hands with lukewarm water and a perfume-free cleanser such as Cetaphil® ‘Moisturizing Gentle Cleansing Bar for Dry Sensitive Skin”. Sometimes oral antihistamine pills (Benadryl) can help relieve the itching. When you do wash your hands, blot them dry gently and immediately apply a moisturizer. Jojoba oil (100% natural) is very good to use. Avoid the waterless or antibacterial cleansers on the market; they contain alcohol, solvents and other ingredients that may make your problem worse. Keep several pairs of cotton gloves around the house to protect your hands while doing dry chores. Even folding laundry can irritate tender skin. | 4,961 | 5,911 |
msmarco_v2.1_doc_01_1671451506#13_2452293329 | http://internationaleczema-psoriasisfoundation.org/dyshidrotic_eczema.php4 | DYSHIDROTIC ECZEMA - Eczema Treatment | DYSHIDROTIC ECZEMA
DYSHIDROTIC ECZEMA
Possible triggers:
| Jojoba oil (100% natural) is very good to use. Avoid the waterless or antibacterial cleansers on the market; they contain alcohol, solvents and other ingredients that may make your problem worse. Keep several pairs of cotton gloves around the house to protect your hands while doing dry chores. Even folding laundry can irritate tender skin. Wash the gloves if they get dirty. If your fingertips aren't affected by hand eczema, cut the glove tips off to stay cooler in hot weather. For wet work, put on your cotton gloves and then cover them with unlined, powder-free vinyl or neoprene gloves. (Latex in rubber gloves can cause allergies.) Afterward, wash reusable gloves inside and out and let them air dry thoroughly. | 5,558 | 6,304 |
msmarco_v2.1_doc_01_1671451506#14_2452294397 | http://internationaleczema-psoriasisfoundation.org/dyshidrotic_eczema.php4 | DYSHIDROTIC ECZEMA - Eczema Treatment | DYSHIDROTIC ECZEMA
DYSHIDROTIC ECZEMA
Possible triggers:
| Wash the gloves if they get dirty. If your fingertips aren't affected by hand eczema, cut the glove tips off to stay cooler in hot weather. For wet work, put on your cotton gloves and then cover them with unlined, powder-free vinyl or neoprene gloves. (Latex in rubber gloves can cause allergies.) Afterward, wash reusable gloves inside and out and let them air dry thoroughly. Toss the cotton gloves in the washer. Wear gloves when peeling potatoes and when working with meat, onions, peppers or acidic fruit, like citrus and tomatoes. We recommend disposable vinyl gloves. When you finish preparing these foods, just throw the gloves away. If a reusable vinyl glove gets a hole, throw it away. | 5,912 | 6,637 |
msmarco_v2.1_doc_01_1671451506#15_2452295444 | http://internationaleczema-psoriasisfoundation.org/dyshidrotic_eczema.php4 | DYSHIDROTIC ECZEMA - Eczema Treatment | DYSHIDROTIC ECZEMA
DYSHIDROTIC ECZEMA
Possible triggers:
| Toss the cotton gloves in the washer. Wear gloves when peeling potatoes and when working with meat, onions, peppers or acidic fruit, like citrus and tomatoes. We recommend disposable vinyl gloves. When you finish preparing these foods, just throw the gloves away. If a reusable vinyl glove gets a hole, throw it away. Wearing a glove with a hole in it is worse than wearing no glove at all. If water gets in your glove, take it off immediately. It's best to never wear a waterproof glove more than 15 or 20 minutes at a time. If you must wear your waterproof gloves for longer than that, apply a moisturizer to your hands beforehand. Ask someone else to shampoo your hair for you. | 6,305 | 7,009 |
msmarco_v2.1_doc_01_1671451506#16_2452296473 | http://internationaleczema-psoriasisfoundation.org/dyshidrotic_eczema.php4 | DYSHIDROTIC ECZEMA - Eczema Treatment | DYSHIDROTIC ECZEMA
DYSHIDROTIC ECZEMA
Possible triggers:
| Wearing a glove with a hole in it is worse than wearing no glove at all. If water gets in your glove, take it off immediately. It's best to never wear a waterproof glove more than 15 or 20 minutes at a time. If you must wear your waterproof gloves for longer than that, apply a moisturizer to your hands beforehand. Ask someone else to shampoo your hair for you. Or wash your hair wearing your waterproof/cotton liner glove combination. Use rubber bands on your forearms to keep water out. Rings can trap irritants underneath them. Remove them when doing housework and before washing and drying your hands. Also, clean your rings regularly by soaking them overnight in 1 tablespoon of ammonia in a pint of water. | 6,638 | 7,374 |
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