W1-2: Trade and technology: the Ricardian Model

Question 1

environment of the ricardian model

Answer 1

2x2x1 model
2 goods/2 industries
2 countries (H and F)
1 input factor: Labour (L)
identical preferences across countries
free trade
balance trade
technology is different across countries

Question 2

what is concept of AA

Answer 2

absolute advantage = AA is determined by larger output per worker

Question 3

what is CA

Answer 3

comparative advantage: the ability to make a product more efficiently
(Lower OC=CA)

Question 4

what is the PPF

Answer 4

various combinations of goods that are produced with all resources and efficient technology.

Question 5

Opportunity cost

Answer 5

OC of X is the units of Y forgone to produce one unit of X.

Question 6

what is autarky equilibrium

Answer 6

the existing price and the quantity that are determined at the point of equilibrium between the demand and supply, so that trade would not take place even if it were permitted.

Question 7

what is IC

Answer 7

various combinations of goods that are indifferent to consumers. Higher IC means higher utility and welfare.