EC 239 Final Exam (chapter 1-10)
International trade - Answer-the exchange of goods and services among nations
Gravity Model - Answer-assumes that size and distance are important from trade
- likes to trade with bigger countries
Tij=(AxYixYj)/Dij
Yi - GDP of country I
Yj - GDP of country J
A - constant
Dij - distance between the 2 countries
Tij - value of trade between country i and j
anomalies - Answer-a country trading considerably more than predicted from the gravity model
impediments to trade - Answer-- distance
- barriers
- borders
, Service Offshoring - Answer-when a service previously done within a country is shifted to a foreign
location
Ricardian model - Answer-assumptions
- one economy (home)
- on factor of production (labor)
- 2 goods (wine and cheese)
Alc (Qc) + Alw (Qw) less than or equal too L
opportunity cost - Answer-(alc/alw) OC of cheese in terms of wine
Pattern of trade - Answer-depends on one thing: ratio of home to foreign wages
marginal product of labor - Answer-addition to output generated by adding one more person hour
diminishing returns - Answer-if labor input is increased without increasing capital diminishing returns
will occur because adding a worker means each worker has less capital to work with
heckscher-ohlin theory - Answer-argues that trade occurs due to differences in resources across
countries
Pc/ Pw > alc/ alw - Answer-relative price of cheese compared to wine exceeds opportunity cost of
cheese
- will produce cheese
- wages in cheese sector will be higher
International trade - Answer-the exchange of goods and services among nations
Gravity Model - Answer-assumes that size and distance are important from trade
- likes to trade with bigger countries
Tij=(AxYixYj)/Dij
Yi - GDP of country I
Yj - GDP of country J
A - constant
Dij - distance between the 2 countries
Tij - value of trade between country i and j
anomalies - Answer-a country trading considerably more than predicted from the gravity model
impediments to trade - Answer-- distance
- barriers
- borders
, Service Offshoring - Answer-when a service previously done within a country is shifted to a foreign
location
Ricardian model - Answer-assumptions
- one economy (home)
- on factor of production (labor)
- 2 goods (wine and cheese)
Alc (Qc) + Alw (Qw) less than or equal too L
opportunity cost - Answer-(alc/alw) OC of cheese in terms of wine
Pattern of trade - Answer-depends on one thing: ratio of home to foreign wages
marginal product of labor - Answer-addition to output generated by adding one more person hour
diminishing returns - Answer-if labor input is increased without increasing capital diminishing returns
will occur because adding a worker means each worker has less capital to work with
heckscher-ohlin theory - Answer-argues that trade occurs due to differences in resources across
countries
Pc/ Pw > alc/ alw - Answer-relative price of cheese compared to wine exceeds opportunity cost of
cheese
- will produce cheese
- wages in cheese sector will be higher
