Chapter 5 Flashcards
International Trade
trade amongst countries and overall improves the well being of a country
Hyper-globalization
is the phenomenon of extremely high levels of international trade
Imports
goods and services purchased from other countries
exports
goods and services sold to other countries
globalization
phenomenon of growing economic trade linkages among countries
Ricardian Model of Int. Trade
Analyzes international trade under the assumption opportunity cost is constant and countries trade for which they have comp advantage in.
Autarky
country doesn’t trade w/ other countries
Does trade liberate countries from self sufficiency
yes trade liberates both countries from self sufficiency- from the need to produce the same mixes of goods they consume
2 Misconceptions of trade between high and low wage countries
Pauper labour fallacy, sweatshop labour fallacy
pauper labour fallacy
high wage country imports good from low wage, high wage works affected has they need to compete with lower wage and low wage workers benefit because of this.
sweatshop
without trade, low wage wont have chance to sell, high wage workers affect with trade, sweat shop workers and consumers benefit
real explanation for low wage countries is
the value that is generated through production which in there case is very low production
sources or factors of a country possibly having comparative advantage (5)
Factor endowments, abundance, intensity,, technology, climate
factor abundance
how large a countries supply of a factor of production is to other factors
factor intensity
ranking of goods, how intense a factor is used in production of a given good related to other factors
heckscher-ohlin model
describes relationship between comp advantage and factor ability: a country that has abundant supply of a factor of production will have a comparative advantage in goods whose production is intensive in that factor.
heckscher-ohlin model example
a country that has relative abundance of capital will have comp advantage in capital intensive industries ex oil. country that has relative abundance of labour will have come advantage in labour intensive industries
industry gets more efficient as it grows=
fewer producers, producers take place only in a few countries
we can use demand and supply model to determine the effects of trade on (4)
- domestic equilibrium price and quantity
- imports
- everyone apart of country
- producer and consumer surplus
we can use demand and supply curve model to determine effects of barriers (2)
- on domestic equilibrium price and quantity
- imports
Producer Surplus in autarky
area above supply curve, below market price. Difference between the market price (actual payment) and the minimum price a producer would be willing to accept
consumer surplus in autarky
area below demand curve and above market price. Difference between what a customer is willing to pay and what the customer actually pays
Domestic market with imports what happens and what happens to producer surplus
country opens to trade, world price drops, consumers want to buy more, firms do not wanna produce that much so country needs to import g/s, producer surplus decreases
domestic market with exports and what happens to consumer surplus
country opens to trade, world price is greater then autarky, firms want to supply more, consumers want to buy less which creates a surplus for producers to export, consumer surplus decrease
