B6 Flashcards
The standard trade model
Explain the Ricardian models look at production possibilities and distribution of income
It assumes production is determined by the allocation of labor (a single resource) between sectors, it conveys the idea of comparative advantage but does not convey information about the distribution of income
Explain the specific factor models look at production possibilities and distribution of income
The model includes multiple specific and movable factors that determines the possibility to produce resources, it captures the short term effect of trade on distribution of income by relaying how trade allows the shifting of production to sectors with abundant factors and how it gains the owners of those factors disproportionally
Explain the Heckscher-Ohrin models diference from the specific factor model
It allows multiple factors of production to move across sectors (like how capital can be sold and traded for land) and thus it displays the long run consequences of trade
What is the income effect
When income increases people tend to consume more by the same proportions
what is the substitution effect
When tasts changes the proportion of consumption of diferent goods change
Can a decline in the terms of trade decrease a countrys welfare beyond the welfare in the absence of thade
No although a rise in the terms of trade increases the welfare in absolute terms
What are terms of trade
the average price of a countrys exported goods relative to the average price of the imported goods
What will be the price of a traded good
The equalibrium of the world demand with the available world supply
Is export biased growth positive for the terms of trade of a country
No, when growth is export biased more of the exported goods can be produced at the same cost but as the native populations need of that is relatively fufilled the growth disproportionately favors the rest of the world
How does import biased growth effect the terms of trade
It benefits the growing county to the detriment of the rest of the world
What is immiserizing growth
Growth in a country that only benefits the rest of the world
How does tarrifs effect the terms of trade
As it makes it less attractive to buy imported goods relative to domestic goods demand shifts accordingly and if the contry makes up a large enough part of the international makrket to effect international demand it can improve the countries terms of trade
Does tarrifs and subsidies have similar effects on the terms of trade
No they have the oppsite, if a subsidy is given to an export production of it will increase which increases the supply and drops the international value of the ware which worsens the terms of trade.
What is the optimal tariff for a small country
basically zero as it reduces consumption possibility whith no noticable effect on world demand and thus terms of trade
How can subsidies be used to benefit the native terms of trade
If exports of a good that is mostly imported is subsidized then it might favor terms of trade.
