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World trade theory

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Why Trade? Introduction The Heckscher-Ohlin theory explains why countries trade goods and services with each other.

Why Trade?

One condition for trade between two countries is that the countries differ with respect to the availability of the factors of production. They differ if one country, for example, has many machines (capital) but few workers, while another country has a lot of workers but few machines. According to the Heckscher-Ohlin theory, a country specializes in the production of goods that it is particularly suited to produce.

Countries in which capital is abundant and workers are few, therefore, specialize in production of goods that, in particular, require capital. From Cakes to a Gold Medal Bertil Ohlin was born in 1899. What Is an Economic Theory? One can compare an economic theory with a map over of a piece of land. Machines and Workers The production of goods and services requires capital and workers. Other goods require less equipment to produce and rely mostly on the efforts of the workers. Wassily Leontief. Wassily Wassilyevich Leontief (Russian: Васи́лий Васи́льевич Лео́нтьев; August 5, 1906 – February 5, 1999), was a German-Russian economist notable for his research on how changes in one economic sector may have an effect on other sectors.

Wassily Leontief

Leontief won the Nobel Committee's Nobel Memorial Prize in Economic Sciences in 1973, and three of his doctoral students have also been awarded the prize (Paul Samuelson 1970, Robert Solow 1987, Vernon L. Smith 2002). Biography[edit] Early life[edit] Wassily Leontief was born on August 5, 1906, in Munich, Germany, the son of Wassily W. Opposition in USSR[edit] Leontief sided with campaigners for academic autonomy, freedom of speech and in support of Pitirim Sorokin. Early professional life[edit] From 1927 to 1930, he worked at the Institute for the World Economy of the University of Kiel. In 1931, he went to the United States and was employed by the National Bureau of Economic Research. During World War II, Leontief served as consultant at the U. References. Heckscher–Ohlin model. The Heckscher–Ohlin model (H–O model) is a general equilibrium mathematical model of international trade, developed by Eli Heckscher and Bertil Ohlin at the Stockholm School of Economics.

Heckscher–Ohlin model

It builds on David Ricardo's theory of comparative advantage by predicting patterns of commerce and production based on the factor endowments of a trading region. The model essentially says that countries will export products that use their abundant and cheap factor(s) of production and import products that use the countries' scarce factor(s).[1] Features of the model[edit] For example, a country where capital and land are abundant but labor is scarce will have comparative advantage in goods that require lots of capital and land, but little labor—grains. If capital and land are abundant, their prices will be low. Theoretical development[edit] The Ricardian model of comparative advantage has trade ultimately motivated by differences in labour productivity using different "technologies". 2×2×2 model[edit] Paul Samuelson. Paul Anthony Samuelson (May 15, 1915 – December 13, 2009) was an American economist, and the first American to win the Nobel Memorial Prize in Economic Sciences.

Paul Samuelson

The Swedish Royal Academies stated, when awarding the prize, that he "has done more than any other contemporary economist to raise the level of scientific analysis in economic theory".[1] Economic historian Randall E. Parker calls him the "Father of Modern Economics",[2] and The New York Times considered him to be the "foremost academic economist of the 20th century".[3] He entered the University of Chicago at age 16, during the depths of the Great Depression, and received his PhD in economics from Harvard.

After graduating, he became an assistant professor of economics at Massachusetts Institute of Technology (MIT) when he was 25 years of age and a full professor at age 32. Biography[edit] Samuelson was born in Gary, Indiana, on May 15, 1915, to Frank Samuelson, a pharmacist, and the former Ella Lipton. Death[edit] Impact[edit]