Standard Model Flashcards
What is the main idea in this model?
A general model analyzing production, trade, and consumption based on relative prices
What are the production factors in this model?
Multiple factors: labor, capital, land
How is the PPC in this model?
Bowed outwards (combines insights from multiple models)
What are the gains from trade according to this model?
Specialization and consumption beyond the production possibility curve (PPC)
Are there any income distribution effects in this model?
Possible, depending on relative prices and specialization
TOT affects the relative prices which according to other models can affect the production factors
What trade patterns are explained in this model?
Flexible trade patterns driven by relative prices
When is this model used?
To analyze the effects of terms of trade (TOT) and welfare in a broader context
Give an example of this model
A country specializes inn export goods benefiting its relative prices and imports others
What are the key assumptions in this model?
Combines insights from multiple models ( Ricardian, Heckscher)
What does the indifference curve (CIC) describe in the model?
It shows all possible consumption combinations that give the same welfare
Where do I find the optimal consumption combination?
Where the indifference curve tangent to the relative price line
