B1-3 Flashcards
Does mutually beneficial trade have to be based on comparative advantage
No
How can a country import more than it exports
Because other countries investments
What ate the seven themes in international economics
The gains from trade, the pattern of trade, protectionism, the balance of payments, exchange rate determination, international policy coordination and the international capital market
Can international trade have strong effects on the distribution of income
Yea, if international investors gain or domestic industries colapse it can lead to inequality
Give an example of protecttionism that would work on the digital sector
In the EU if there is an european alternative gor a free digital service it has to be the default.
Are conflicts of interest between or within nations the most determinant for trade policy
Mostly within in the case of democracy
Who enforces trade rules
The world trade organization
What are the subfields of international economics
The studies of International trade and money
Is there a strong correlation between the size of an economies GDP and their market capitalization of trade with other partners
Yes, at least this is the case of US trade with EU countries
What is the gravity model of trade
That the value of trades depends on distance and economy size according to the mode Tij = A * Yi * Yj / Dij where Tij is the value of their trade, A is a constant, Y is GDP and D is the distance between the economies
Are the constants of the gravity model of trad often exponentiated
Yes to make the model fit the data better, the model thus becomes
Tij = A * Yia * Yjb /Dij**c
What may cause reality to diverge from the gravity model
f.ex cultural affinity, legal shenanigans and advantageous geography
Do borders only have a negative effect on trade if there is no free trade
No, trade within a nation is typically much stronger than trade with other countries even of there are strong free trade agreements, even with nafta the US canadian border represents a barrier equal to about 2000 miles
Is it technology or globalism that is the main driver of globalization
Mostly politics, there was a great wave of globalization between 1840 and 1914 but with the world wars and the following protectionism trade did not reach its 1914’s highs untill 1970 despite rapid technological development
Most of what is traded is fuels and mining products
False, more than 50% is manufactured goods like machines and clothing, services are almost a quarter where after raw materials are about 12% and agricultural products about 8%
Describe two trends in global trade
Third world countries trade more and more in manufactured goods while first woorld countries like the US trade more and more in services.
Explain comparative advantage
Some countries have advantages in producing certain good, f.ex the warm even weather in colombia makes growing flowers possible year round while the technical knowhow and ing´frastructure in the US makes it more efficient at producing computers. Both countries could make both ware but it would take comparatively many resources so they could en up with more if they stick to what they are good at and trade their surplus.
What is the unit labor requirement
The hours of labor required to produce one unit of a good in a particular country. This is the inverse of productivity
How can the limit of production by labor be described mathematically
L >= aLgQ, the amount of labor must be greater or equal to the quantity of a resource (Q) produced under the unit labor requirement (aL) of the good g
Explain a Production possibility fronteir
A line in a graphy where the axles represents two goods and the line is the possible tradeof between the goods. Sortof like a budget line in an indiference curve.
The line in a production possibility fronteir graph represents equal opertunity cost between production of the goods in a closed economy.
True
What is an absolute advantage in producing a good
When a country can produce a unit of a good with less labor
Is comparative advantage the same as absolute advantage
no
What determines the price in a closed economy without trade
The relative factor of production of the two goods. If it takes twice the labor to produce a pound of cheese than a pound of wine cheese should be twice as expensive all else equal
Why does the relative supply curve look like stair step in the relative supply and demand curve of two wares in general equalibrium analyisis of two trading economies
Becouse the supply starts at the cost of producing the good in the economy that can produce it the cheapest but when demand increases it will reach a point when it is profitable for the other economy to also produce
How does comparative advantage differ from absolute advantage
comparative advantage takes opportunity cost into consideration, if a country can produce much more wine than cheese it makes sense for it to produce more of it and sell it to another cointry that is much better at chease even if the country is still a littel better at producing wine too
A country has a comparative advantage when it can produce something with fewer factors of production than other nations
No that is an absolure advantage
Explain the gains from trade
Trade allows for more efficient indirect production becouse a country good at producing cheese could produce more wine by producing more cheese and trading if for wine from a country good at producing wine than if it just produced wine itself
Does lower wages lead to comparative advantage
It may but if another country is productive enough to ofset the extra cost of labor low wages may not be enough
What is autarky
A non trade regime
Is free trade only beneficial if the country can stand up to forign competition
No becouse an absolute advantage is not the same as acomparative advantage, if wages are lowered a comparative advantage can be reached in one sector but then the doestic workers can still get all the other products produced by the other country for cheaper in comparision than if they were produced at home.
Does comparative advantage hurt countries when it is based on low wages (pauper labor argument)
No, not in agregate terms, if they can get more by producing just cheese it will give them more in total and it will give the low wage forign competitors more cheese than if they were to produce it themselves.
Does trade hurt a contry if low wages is its only way to get comparative advantage.
No, what is the alternative, to love in squalar with no cheese
Why does wages depreciate when a country cannot compete otherwise
Becouse the demand for labor decreases as industries are offshored
Why does countries not specialize to the extreme in the real world
becouse there are more than one factor of production which can make advantages fluctuate, becouse contries sometimes protect some industries and becouse it is costly to transport goods and services
What are the shortcomings of the ricardinan model of trade
It does not account for some goods being nontraded duet to high transportation costs, it looks at it from the point of view of countries and not people whos income distribution may be worsened by trade, and it also fails to accounts for differing resources and economies of scale as factors of production
If a country has an absolute advantage on all goods what goods will it still import according to the ricardian model
The goods where it sproductivity advantange is the smallest aka where it has a comparative advantage.
