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Econ 608 > Test 1 > Flashcards

Test 1 Flashcards

1
Q

Why does the gravity model work?

A

Large economies tend to have large incomes and tend to spend more on imports

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2
Q

Which things increase trade between two countries?

A

larger economies
historical ties
linguistic/or cultural affinity
mutual membership in preferential trade agreements

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3
Q

Characteristics of indifference curves

A

the slope of the indifference curve is the marginal rate of substitution
indifference curves are usually bowed towards the origin
indifference curves are downwards sloping when both goods are bads

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4
Q

Ceterus Paribus means we assume

A

factors besides those under consideration do not change

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5
Q

Top 3 US trade partners

A

Mexico, Canada, Japan…

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6
Q

Over the last 50 years, world production_____ and world trade____

A

increased, increased

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7
Q

International economics _______use the same fundamental methods of analysis as other branches of economics, because

A

the motives and behavior of individuals are the same in international trade as they are in domestic transactions

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8
Q

The demand curve for beverages slopes downward because

A

when the price of beverages falls, consumers buy more beverages

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9
Q

The supply curve for beverages slopes upward because

A

when the price of beverages falls, producers make less beverages

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10
Q

Over the last 50 years, U.S. imports…

A

increased more than exports

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11
Q

One of the main actions of the Organization of Petroleum Exporting Countries in 1973 was to

A

reduce oil supply, causing world oil prices to rise

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12
Q

A drop in the price of beverages causes

A

a movement along the beverage deman curve

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13
Q

Suppose a Pepsi soda machine and a Coca Cola machine were sitting right next to each other and they both charged $1 for a bottle of their own soda. If Coca Cola raised its price to $1.25 we might expect that the demand curve…

A

the demand curve for Pepsi would shift to the right.

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14
Q

Factors that cause the PPF to shift out

A

Discovery of new oil fields in Texas
Immigration
New manufacturing technologies

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15
Q

In a model with only chips and beverages, the price of beverages is defined as

A

the number of chips you have to give up to get one more beverage

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16
Q

True or False: Migration between countries is allowed in the Ricardian model

A

False

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17
Q

True or False: the Ricardian model has one factor of production

A

True

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18
Q

True or False: there is no money in the Ricardian model

A

True

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19
Q

True or False: Factors are perfectly mobile between sectors in the Ricardian model

A

True

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20
Q

True or False: Indifference curves are downwards sloping if both goods are good

A

True

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21
Q

True or False: Indifference curves can cross

A

False

22
Q

True or False: A consumer’s happiness is equal everywhere along an indifference curve

A

True

23
Q

True or False: Most indifference curve analysis assumes that more of either good increases happiness

A

True

24
Q

The Ricardian model illustrates how gains from trade can emerge from….

A

differences in production technology across countries

25
Q

In the Ricardian model, workers are better off if

A

real wages go up

26
Q

In the Ricardian model, technology is:

A

the number of workers that it takes to produce one unit of each good

27
Q

In the Ricardian model, the pattern of trade is determined by:

A

comparative advantage, autarky prices, and autarky opportunity costs

28
Q

The main point of the Ricardian model

A

to show how comparative advantage leads to gains from trade

29
Q

The main difference between the Ricardian model and the Heckscher Ohlin model is

A

the number of inputs

30
Q

If we know that the capital-labor ratio in aircraft is higher than the capital-labor ratio in clothing, the correct characterization of the aircraft industry is

A

capital intensive

31
Q

The main reason that Mexico’s wages are lower than wages in the US is most likely that

A

Mexico has less capital per worker than the US

32
Q

When there is one factor that is equally productive in both goods, the production possibilities frontier is -

A

a straight line

33
Q

China’s wages are lower than US wages.
Mexican wages are lower than US wages.
Canada’s wages are about the same as US wages. If capital is the same price in all countries, which of the following statements is most consistent with the Heckscher-Ohlin theorem?

A

The US imports labor intensive goods from China

34
Q

Which of the following models best demonstrates that differences in tech across countries determines comparative advantage?

A

Ricardian

35
Q

The Stolper-Samuelson theorem predicted that in the US, NAFTA would

A

increase earnings of capital owners but lower workers’ wages

36
Q

The main difference between the Heckscher-Ohlin model and the Specific Factors model is

A

the Specific Factors model describes the short-run gains from trade and the Heckscher-Ohlin model describes the long-run gains from trade across different groups

37
Q

Which 2 models help us understand how some groups gain from trade while others lose from trade?

A

Heckscher Ohlin and Specific Factors

38
Q

Which theorem describes a long-run relationship between product prices and factor prices?

A

The Stolper-Samuelson Theorem

39
Q

In trade theory, a “small country” is one that

A

takes the world price as given

40
Q

Which theorem describes a long-run relationship between factor endowments and production?

A

Rybczynski Theorem

41
Q

Cuban immigrants did not change wages in the 80s - this is consistent with which theorem?

A

The Factor Price Equalization Theorem

42
Q

The best theorem for trying to understand if inequality is liked to US trade is:

A

The Stolper-Samuelson Theorem

43
Q

If we wanted to know if changes in apparel production were related to immigration, the most appropriate theory would be

A

Rybczynski (because it deals with output quantities/production over endowments/amount of labor)

44
Q

Which model is least likely to be supported by available data?

A

Factor Price Equalization

45
Q

If one good uses relatively more of factor A than Factor B,

A

we can’t say anything about factor abundance or factor intensity of this good

46
Q

In the large country supply and demand model, an increase in supply in the exporting country

A

would cause the world price to fall

47
Q

Factor Price Equalization

A

different countries have different factor supplies. Some are more labor abundant and some are more capital abundant, so in a labor abundant country, capital is more expensive before trade. After trade, in the labor abundant country, the price of the labor-intensive good will increase because there is an increase in the demand for labor. Then, the price of labor will rise because they are making more of the labor intensive good. Wages will therefore begin to converge.

48
Q

Rybczynski

A

Increase in the endowment of labor causes production of the labor intensive good to increase and the production of the capital intensive good to fall.

49
Q

Stolper-Samuelson

A

An increase in the price of the labor-intensive good causes wages to go up in real terms and r (the price of capital) to fall in real terms. The capital-intensive good does the opposite.

50
Q

3 Theorems that are part of HO

A

FPE, SS, Ryb

51
Q

Long Run theorems

A

HO - FPE, SS, and Ryb

52
Q

Why do countries trade?

A

because prices are different

Econ 608 (2 decks)

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