Chapte 3 Flashcards
Stopler-Samuelson theorem
An increase in the price of a product increases the income earned by resources that are used intensively in its production, and vice versa.
magnification effect
The change in price of a resource is greater than the change in the price of the good that uses the resource relatively intensively in its production process.
Specific factors
Those that cannot move easily from one industry to another
specific-factors theory
Analyzes the income-distribution effects of trade in the short term when resources are immobile among industries.
Leontief paradox
Exports are less capital intensive than import-competing goods.
Economies of scale
When expansion of the scale of production capacity of a firm or industry causes total production costs to increase less than proportionately the output.
home market effect
Countries will specialize in products that have a large domestic demand. Why? By locating close to its largest market, an industry can minimize the cost of shopping its products to its customers while still taking advantage of economies of scale.
interindustry trade
The exchange between nations of products of different industries.
Interindustry specialization
Each nation specializes in a particular industry in which it enjoys a comparative advantage.
intra-industry specialization
Focusing on the production of particular products within a given industry.
Heckscher-Ohlin Proposition
A country will export that commodity whose production is relatively more intensive in its abundant factor of production, and will import that commodity which is relatively more intensive in its scarce factor of production.
Dybczynski Theorem
In a two-good world with constant prices, growth in the supply of one factor of production causes the output of the other good to decline.
product cycle theory
Early in a product’s life-cycle all the parts and labor associated with that product come from the area in which it was invented. After the product becomes adopted and used in the world markets, production gradually moves away from the point of origin. In some situations, the product becomes an item that is imported by its original country of invention.
dynamic comparative advantage
In addition to the business sector, gov can establish policies to promote opportunities for change through time.
industrial policy
When gov is actively involved in creating comparative advantage.
