Vecka 1 Föreläsningar del 3 Flashcards
What will Capital rich countries do?
Export capital intensive goods.
What does the relative price decide?
What is produced.
What does Stolper-samuelson theorem say?
If the relative price of a good rises, the price of the factor used intensively in the production of that good will rise.
What does the Rybczynski theorem say?
At given Product prices, if there is more of one factor, the supply of the good whose production uses this factor intensively will increase while the supply of the other good decreases.
What does Higher relative price of the labour-intensive good means according to purchasing power?
Higher purchasing power for workers but lower for capital owners.
What does the Heckscher-Ohlin theorem say?
Countries tend to export goods whose production is intensive in factors that the country is relative rich in.
Who will benefit from free trade according to Heckscher Ohlin model?
Those who own the factor a country is rich in will benefit from free trade, because they will mainly be active in the exporting sector. The owners of the scarcity factor will lose from free trade because they are mainly active in the import-competing sector.
What are the Empirical evidence of the Heckscher-Ohlin model?
- It has weak empirical support for such a simple version of the model.
- Better support if you take into account differences in technological level, the fact that countries do not Produce the same of all goods and that there are trade barriers and transport costs.
- With better technology, each worker can produce more, reducing the effect of labour shortages.
- Can also explain trade between developed and developing countries.
What is the standard trade model?
A general model that takes the other models as special cases. It says that:
- Comparative advantages are due to differences in productivity or factors of Production.
- The key Components that capture Supply and demand factors are production possibility curves, iso-value lines and indifference curves.
What are the Assumptions of the Standard trade model?
- Two countries
- Two goods
- Smooth and bowed production possibility curves
- Differences in labour, Capital, country and/or technology.
- The country’s relative supply is given by its production Possibility curve.
- Relative world supply is given by relative country supply.
Which consumption mix does The country choose?
The consumption mix that brings the most benefit to its citizens.
Which good does The country export?
The good where it has comparative advantage.
What happens when the relative price rises?
The country’s relative supply increases and its relative demand decreases. The country exports and imports more. A higher indifference curve can then be reached so that the country as a whole gets higher welfare.
Where is a country´s Budget constraint?
Where consumption cost = production value
What is Terms of trade gain?
When Tot improve. You get more for your exports and can buy more of both goods.
