B5 Flashcards
Resources and trade, the Hekscher-Ohlin model
What is another name for the Heckscher-Ohlin theory
factor proportions theory
Explain the production possibility fronteir in the factor substitution model without substitution
Producing different goods will not consume all resources, if you produce food for example you might have excess machine hours for example while if you just produce closth you might have excess labor hours
What happens to the production possibilityfronteir in the factor substitution model when factos may be substituted
It kink is removed and the graph becomes more spherical as there is now no excess factors when you just produce one good
How does the economy choose what share of goods to produce according to the factor substitution model
At the highest isovalue line aka the point in the production possibility fronteir which is furthest from origo where the value of goods produced is the highest
Can goods be intensive in both factors in a two factor factor substitution model
No becouse intensity is defined in the other factor. If a good is capital intensive it means that more capital is always used to produce it than the other factor eg labor
What is a biased expansion of the production possibility fronteir
When the possibility to produce one good expands more than another, this occurs when the availability of a factor required for its production is inncreased. Like when the labor pool increases an economy can create more cloth but not nececarially more food as that is restricted by land
What is the Heksher-Ohrin Theorem
That a country which is abundant in a factor (has relatively large availability) exports the goods whos production is intensive in that factor
Who gains from trade in the long run according to the Heksher-Ohrin model
Thw owners of the abundant factors gain while the owners of the scarce factors lose
What happens when a country with abundant high skill labor trades with a country with abundant low skill labor according to the factor substitution model
High skill employees in the high skill county are better off while low skill employees in the low skill country are better off. The reverse is true for the reverse groups.
What is the leading theory of why high skill employees in low skill countries earn more nowadays even if their economies should shift away from them
Becouse technological change is biased in their favor
Why do the price of factors not tend to equalize with trade
Becouse 1. thechnologies are diferent, 2. barriers to trade diferentiating the factors in diferent countries and 3. Countries dont produce the same set of goods and cannot switch between them at will
What is the Leontief parradox
The observation in 1953 that the US tended to import more capital intensive products than it exported which is strange as the US is extremely abundant in capital.
