Vecka 1 Sammanfattningar del 3 Flashcards
What does a rise in a country’s terms of trade increase, all other things equal?
Its welfare.
What happens with PPF when there is Economic growth?
An outward shift, but such growth is usually biased; that is, it shifts out more in the direction of some goods than in the direction of others.
What is The immediate effect of biased growth, other things equal?
An increase in the world relative supply of the goods toward which the growth is biased. This shift in the world relative supply curve in turn leads to a change in the growing country’s terms of trade, which can go in either direction.
What does The direction of the terms of trade effects depends on?
The nature of the growth.
What does export-biased growth do?
Worsens the terms of trade.
What is export-biased growth?
Growth that expands the ability of an economy to produce the goods it was initially exporting more than it expands the economy’s ability to produce goods that compete with imports.
What is import-biased growth?
Growth that disproportionately increase the ability to produce import-competing goods.
What does import-biased growth do?
Improves a country’s terms of trade.
What does Import tariffs and export subsidies affect?
Both relative supply and relative demand.
What does A tariff do?
- Raise relative supply of a country’s import good while lowering relative demand.
- improves the country’s terms of trade at the rest of the world’s expense.
What effect does an export subsidy have?
- Increasing the relative supply and reducing the relative demand for the country’s export good,
- worsening the terms of trade.
What does the “gravity model” of trade suggests?
That trade volume between two countries is positively related to the product of their GDPs and negatively affected by the distance between them, much like gravitational attraction.
What does the Ricardian Model Focuse on?
Labor allocation across sectors to illustrate comparative advantage but does not address income distribution.
What is different from the Ricardian model with the Specific Factors Model?
It Incorporates multiple production factors, some specific to certain sectors, and captures the short-run effects of trade on income distribution.
What does the Heckscher-Ohlin Model Feature?
Mobile production factors across sectors, emphasizing resource differences at the country level to explain trade patterns and addressing long-run income distribution effects.
