week 1

Question 1

what are the two competitve models of international trade

Answer 1

ricardian model

hecksher-ohlin-samuelson model

Question 2

what is the ricardian model?

Answer 2

international difference in technology and productivity

Question 3

what is the HOS

Answer 3

internation difference in resource and factor mix

Question 4

what are the common assumptions of RM and HOS?

there are 7

Answer 4

1. there are 2 goods, X and Y
2. 2 countries, A and B
3. perfect competition in all markets: price takers
4. CRTS technolgies for all gods
5. identical prefrences across all consumers in the world
6. factor mobile with countries but immobile internationally
7. full employment and balanced trade

Question 5

what are the differing assumptiuons between RM and HOS

Answer 5

factor endownments:

• RM: 1 factor which is labour
• HOS: 2 factors which is capital and labour

technological differences:

• RM: between industries and countries –> 4 techonoogies/4 production in the world
• HOS: industry only –> 2 pruduction/techonologies

Question 6

what is a PPF

Answer 6

ppf plots all the output pairs that can be produced by a country, assuming full employment and efficient allocation of factors between countries –> relavant to HOS

Question 7

PLot a ppf diagram

coutnry A
x =400
y 200

country B
x=100
y=100

Answer 7

refer to 1st week lecture if you get it wrong.

Question 8

what is comparative advantage and what international comepetive models does it relate to?

Answer 8

RM and HOS

- oppourtunity cost of producing a a given good differ across countries

Question 9

how do you find whether a country has a comparative advantage or not

Answer 9

compare the slopes between 2 countries

Question 10

what is absolute advantage and what international competitive models does it relate to?

Answer 10

RM only

• AA relates to how much output per worker (productivity)
• IF LABOUR FROCES ARE THE SAME SIZE, compare intercepts

Question 11

why is absolute advantage not relavant to the HOS model

Answer 11

HOS model suggest that techonology is identical across coutnries

Question 12

what are popular fallacies among abs advantage

Answer 12

productivity determines the pattern of trade.

A country must be very productive to gain from trade

Question 13

what are the possible outcomes of A PPF

Answer 13

in a 2x2 model: a co. may have 0,1 or 2 absolute advantages but it will always have extactly one comparative advatange