free trade theory
TRANSCRIPT
Case studyPresentation
from International Free Trade Theory
(18 April 1772 – 11 Sep 1823)
• He began his professional life as a brokerand financial market speculator. He got aseat in the U.K. Parliament. He held hisparliamentary seat for the last four yearsof his life.
• Perhaps his most important legacy is histheory of comparative advantage, whichsuggests that a nation shouldconcentrate its resources solely inindustries where it is mostinternationally competitive and tradewith other countries to obtain productsnot produced nationally.
About David Ricardo…
The ability of a firm or individual to produce goods and/orservices at a lower opportunity cost than other firms orindividuals. A comparative advantage gives a company the abilityto sell goods and services at a lower price than its competitorsand realize stronger sales margins.
Law of Comparative advantage
TOPIC:Medical Tourism - A Case Study
for the USA and India
ByMarc Piazolo
Professor of Economics University of Applied Sciences Kaiserslautern Graduate School of Management, Germany
Overview of the study…
• Their strong motivation is to illustrate that specialization andfree trade result in gains from international trade.
• This case shed’s some light on the economics of outbound aswell as inbound medical tourism. By adopting the model ofcomparative advantage to the costs of medical surgeries, wewill show that trade between our two model countries – Indiaand the USA – is beneficial to both of them.
• The study focuses on these two countries due to theirprominence in worldwide medical tourism flows, as well asdue to their significant difference in per capita income.
General Trends in Medical Tourism
• Historically, patients of developing countries often journeyed from less developed countries to medical centers in more developed countries, where they received services that were not available in their countries of origin - as medical know-how and technology were missing.
• As technology and medical know-how dissolved to emerging market countries, a new model of medical tourism – from rich to poor countries – evolved over the last two decades.
• Today, one finds modern hospital facilities close to major tourist attractions in countries like India, America etc.
Unit cost for different types of medical procedures (in USD)
Medical travelers by point of Origin
Medical Services and Ricardian Model of International Trade
In this section there has been a demonstrationof some empirical evidence for principle ofcomparative advantage which in turn leads tospecialization and wealth creation for medicaltourism sectors in India and the USA.
Some assumptions Should be Considered…as per David Ricardo
• Two countries, two goods or services
• Equal size economies
• Full employment
• Constant opportunity costs
• Perfect mobility of factors of production within countries
• Negligible transport cost
• Perfect competition
Unit costs for dental services in India and the USA
Maximum Output per Day for India and the USA
The USA has absolute disadvantages in both Dental Implants (DI) andDental Crowns (DC), measured by larger costs of production.
TABLE-1
TABLE-2
Production possibilities frontier for India and the USA
Assumption Taken…The complete absence of trade is called Autarky, and in this situation,both India and the USA are limited in their consumption to the goodsthat they produce at home. Suppose autarky prevails, we haveassumed both countries divide their respective production capacitiesequally between DI and DC production.
India would choose to produce and consume nine units of DI and 40units of DC. The total outcome in autarky is summarized in aboveTable, where the world production and consumption is the sum ofIndia and the USA production and consumption, 18 DI and 65 DC,respectively.
TABLE-3
Above table illustrates how both countries gain from specialization andfree trade. As a result of comparative advantage and international trade,the USA produces 18 units of DI, but no DC, and India produces 80 unitsof DC, but no DI. By comparing Table 4 with Table 3, it is evident thatspecialization promotes wealth creation measured by increase in totalworld production.
CONTINUE…TABLE-4
60 Seconds Video on Comparative Advantage…Next
QUESTIONS…
• Do International Trade really brings down the cost? How?
• Do you think India & USA should trade?
• Do International Trade brings comparative advantage for a country? How?
• Are Comparative Advantage and Competitive Advantage the same?
• Can you give any example related to this topic?
SOURCES…
• http://cb.hbsp.harvard.edu/cb/search/David%2520ricardo%2520international%2520trade%2520theory?Ntk=HEMainSearch&N=0
• http://www.uni-buda.hu/journal/Piazolo_Zanca_27.pdf
• Academia.edu | Documents in David Ricardo -Academia.edu
• http://www.levyinstitute.org/pubs/wp_635.pdf
