Midterm Exam Flashcards
Wages VS. Productivity:
Wus=$20/hr Wch= $5/hr
MPLus=30 units/hr MPLch= 5 units/hr
What can you determine from the information?
US workers are relatively cheaper.
What is an Autarky related to the PPF? (Production Possibility Frontier)
Autarky is a country working ON its PPF.
Consumer Surplus/Producer Surplus:
What places on a graph are these areas?
Consumer Surplus: Triangle above WP & below Supply line
Producer Surplus: Triangle below WP * above Demand line
What are sources of CA? (Comparative Advantage)
- Differences in Technology
- Methods of Production
- Factor Endowments
What is the basis of the H/O Model?
Based on Factor Endowments.
Ex: If there is a lot of Capital in the US, then the cost of Capital would be cheap.
If the PFF is bowed out,
what does this affect mean and to what exact costs are affected?
Increasing Costs & Opportunity Costs are affected. (Increasing Opportunity Costs)
Considering Trade & Transportation Costs, when is trade feasible?
As long as the pre-trade price difference is greater than the transpiration cost.
What areas on the graph show DWL in a small country model?
DWL is the area of the two side triangles.
What is the area formula for a triangle?
1/2(bh)
What does the T.O.T. Effect (Terms of Trade) effect mean?
How much the foreign producer will be paying for a tariff.
What is T.O.T effect on the graph?
Small rectangle under price line of Freetrade Equilibrium point.
What is the area formula for a rectangle?
BxH
How do you determine how much a country will import?
Consumption - Production
Demand - Supply
______8_____15_______ Imports = 7
Using the Specific Factor Model, who gains and loses from trade?
In abundant supply.
What are assumptions of the Ricardo Model?
Ricardian Model Assumptions. The modern version of the Ricardian Model assumes that there are two countries, producing two goods, using one factor of production, usually labor. The model is a general equilibrium model in which all markets (i.e., goods and factors) are perfectly competitive.
