Exam 1: Nelson's Powerpoints Flashcards
What are factor endowments?
Factors of endowment could be climate/location, education, or a specialized work force. § Boston specializes higher education. Now it is an affluent area, because higher education = more money • Factor endowment is also a natural resource such as climate favorable to growing coffee beans. Several Central American countries have such a climate, as does Tanzania, Kenya, Indonesia, Thailand and Vietnam. • Think of a factor endowment also as a non-natural resource, such as a highly educated work force. • Consider Japan, United States, Germany, Great Britain, Canada, France • We say “non-natural” because an educated work force is not god-given, but rather is cultivated by a society over time
What is comparative advantage?
A country has a comparative advantage in producing a commodity if it can do so at a relatively lower opportunity cost in terms of foregone alternative commodities than country could otherwise be produced.
What is efficiency?
.Produce an item with little expenditure, maximizing profit
What is specialization?
Countries have specializations: This sets them apart. And when a country has two (or more) different specializations, and when they meet in the middle, it will benefit them GREATLY (not unlike people). ○ For instance, if a person double majors in accounting and French, then they will be specialized to do accounting in French-speaking countries By SPECIALIZATION we mean that a country devotes as many of its energies or “resources” to the cultivation of those factor endowments which are abundant, or the production of a commodity (say, the automobile) which best exploits those factor endowments which are abundant, or which it has cultivated over time (say, talented engineers). Similarly, every country avoids those sectors which utilize factor endowments which are scarce.
What is division of labor? What can it do?
.The allocation of tasks among workers such that each engages in tasks carried out the most efficiently. Division of Labor promotes worker specialization, thereby raising overall labor productivity. Division of labor can drive people down and punish.
What is opportunity cost? What do you need to do with opportunity cost?
In production, the real value of resources used in the most desirable sector of production in light of alternatives. For example: the opportunity cost of producing an extra unit of a manufactured commodity (say, a light bulb) is the foregone alternative of a unit of food (say, a head of lettuce) that results from transferring resources from agricultural to manufacturing production You must be strategic, nothing is going to be handed to you. This is what countries (governments, business leaders, universities) have to do too. ○ Universities want to have high value (high knowledge) workers to benefit the GDP of the US economy. ○ We all have different skills but these differences bring us together and we all stand to gain.
What is trade dependency?
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What is productivity?
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What is relative cost? What is the logic of relative cost (use England and Portugal as an example)?
Relative Cost: The principle of comparative advantage asserts that a country will specialize in the export of the products that it can produce at the lowest relative cost with other products if could produce relative to other countries.
What does Fallows say the government needs to do? Why does this go against what most American’s think?
• The government needs to become dramatically interventionists in the economy. • American’s are used to hearing about the government getting out of the business of business
What is both Nelson’s and Mark Blithe’s definition of austerity?
• Nelson’s definition = government cutbacks and shrinking the public sector. • Mark Blithe’s definition = A form of voluntary deflation (lowering prices) in which the economy adjusts through the reduction of wages, prices, and public spending to restore competitiveness, which is best achieved by cutting the states budget deficits and public debts. ○ When a government lowers prices it makes that countries exports cheaper for international markets. This means more nations will consume those exports.
What was Cameron’s study and how did it relate to Rodrik?
• Cameron asked “why had the public sector expanded so rapidly in the major advanced economies in the decades following WW!!?” • Rodrik decides to look at this himself. Despite using different data, it was the same picture: a strong positive correlation between a nation exposure to international trade and the size of it’s government. “High trade = lots of government.”
What is Gross Domestic Product (GDP)?
Sum total of all goods and resources. It is the measure of economies size. As a measure of wealth, GDP is usually expressed in per capita (meaning “individual”) terms. GDP per capita is often expressed in terms of “purchasing power parity” (PPP)
Why does the Netherlands have a higher GDP of trade when compared to the USA? How does the Netherlands compare to Japan?
USA is incredibly diversified. We have lots of jobs in high sectors. He finds that the Netherlands has a big government that spends more when compared to Japan which as a lower trade as percent of GDP.
Why is there a Tea Party?
Their presence in politics is due to the fact that the government isn’t serving as an intermediary between the public and private sectors. Essentially, the governments aren’t big enough.
What happens when a government exposes itself to trade? (use Southwest Virginia as an example)? Why is this important?
○ The government needs to moderate the ills that happen when a government exposes itself to trade ○ Southwest Virginia is an example of this. § There used to be a lot of textile manufacturing, but then those jobs went to Mexico, and then to China. That has left Southwestern Virginia in a bad position because all of the jobs are gone. These communities did not diversify. § This is where WE all are headed.
Why do nations trade? And why should they trade?
• It benefits them. They WANT to trade. ○ It leads to lower costs, efficiencies, and a greater variety for consumers. • Nelson’s definition: The basis for trade arises because of national differences in the relative supply of factor endowments and the domestic price ratios that result from efficiencies in production
Take two countries, England and Portugal. Each country produces commodity X. England is said to have a comparative advantage in the production of X it its absolute advantage margin is greater than B’s production of X. What is the logic of relative cost using England and Portugal as examples?
England’s comparative advantage lies in commodity X, where the commodity cost between England’s and Portugal’s is the highest. Portugals comparative advantage lies in commodity Y, where it’s cost disadvantage is lowest.
