Lecture 8 : Why countries trade ?

Question 1

WHY DO COUNTRIES TRADE
WITH ONE ANOTHER?
Differences in factor endowments (4)

Answer 1

ifferences in factor endowmentsNatural resources / raw materialsClimate, terrainLabour force (quantity, skills)Capital and/or technology

Question 2

More reasons to trade?

Answer 2

Intra-industry or intra-firm trade (via globally integrated production activities)Trade and geography: agglomeration economies (i.e., economies of scale and scope)

Question 3

Explain or give an example of

Intra-industry or intra-firm trade (via globally integrated production activities)

Answer 3

Big auto market in Quebec and in ontario

intra-industry model = 33% of all imports + exports of thw world

Question 4

Explain or give an example of Trade and geography: agglomeration economies (i.e., economies of scale and scope)

Answer 4

Jillian Valley = group of software engineers

Question 5

What’s the standard international trade model

Answer 5

countries are gonna be advanted in the prod of certain goods and disadvanted in the prod of other goods

Question 6

What’s an absolute advantage ?

Answer 6

when a country is more efficient - more multiple causes- in the prod. of certain goods

Question 7

What’s an exchange ratio ?

Answer 7

Based on the productivity frontier - it is the rate that countries will use to give a value to their imports and exports

Question 8

What’s the relative demand

Answer 8

the repartition of the prod. of goods and services in the table

Question 9

What’s the relative efficienty

Answer 9

How much good a country can produce when all its labor is assignment to a particular good production

Question 10

How do we calculate the GAINS if the countries exchanges in the table

Answer 10

by looking at the consumed column

Question 11

What are the four pillar of the competitive advantage

Answer 11

1- land, labor, capital
2-demand
3- supporting industries : accountant, lawyers, telecomm. industry
4- competition : to force firms to continue to invent !!!

Question 12

Definition of absolute advantage

Answer 12

A country has an absolute advantageover another in the production of a good if it can produce that good using smaller quantities of resources than can the other country (Adam Smith, circa 1776

Question 13

definition of omparative advantage

Answer 13

Even if one country has an absolute advantage relative to another country in the production of every good, it is said to have a comparative advantagein making the good in the production of which it is least inefficient compared with the other country