29 terms

International Economics Ch.3


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In the Production Possibilities Frontier, the absolute value of the slope
is the opportunity cost of Good A in terms of Good B
If the PPF is a straight line,
opportunity cost between Good A and Good B is constant
When one country can produce a unit of good with less labor than another country, we say that the first country has a(n)
absolute advantage
International trade allows a country to consume _______ the production frontier
Gains from trade depend on
comparative advantage
The competitive advantage of an industry depends not only on its productivity relative to the foreign industry, but also on
the domestic wage rate relative to the foreign wage rate
The pauper labor argument states that
foreign competition is unfair and hurts other countries when it is based on low wages
The rule for allocating world production is
goods will always be produced where it is cheapest to make them
It's cheaper to produce a good at home if
W(a) < W(a) or
a/a > w/w
Home has a cost advantage in any good for which its relative productivity is higher than its
relative wage
As the equilibrium relative wage (w/w*) gets higher,
home will produce less
In the multi-good, single-factor Ricardian model, the decisive factor in determining which country will produce a particular good is
the identification of the lowest cost producer
What indicates that foreign will be the lowest cost producer of socks?
W(Als) > W(Als)
In the multi-good, single-factor Ricardian model, the equilibrium relative wage of Home's workers is determined by the
relative demand and relative supply of labor
The relative demand for labor function is shaped as
a step function
How does the fact that many goods are nontraded affect the extent of possible gains from trade?
As the number of nontraded goods increases, the gains from trade decrease
The Ricardian model states that
trade between two countries may benefit both if each exports the product in which it has a comparative advantage
As a result of trade, specialization in the Ricardian model tends to be
complete with constant costs and incomplete with increasing costs
If the world terms of trade for a country are somewhere between the domestic cost ratio of H and that of F, then,
H and F will both gain from trade
In a two country and two product Ricardian model, a small country is likely to benefit more than the large country because
the small country is less likely to trade at price equal or close to its domestic relative prices
Production possibility frontier being flatter to the candy axis means
the country has comparative advantage in candy
The pauper labor theory and the exploitation argument are
irrelevant to the Ricardian model, and do not limit its logical relevance
What's been confirmed by empirical tests of the Ricardian model?
Companies tend to export goods in which they have a relatively high level of productivity
A country engaging in trade according to the principles of comparative advantage gains from trade because it
is producing imports indirectly more efficiently than it could domestically
Earliest statement of the principle of comparative advantage is associated with
David Ricardo
If the world terms of trade equal those of country H, then
country F but not country H will gain from trade
In 2x2 model, if two countries under autarky engage in trade then
the real wage will rise in both countries
If a production possibilities frontier is bowed out (concave to the origin) then production occurs under conditions of
increasing opportunity costs
In the Production Possibilities Frontier, the absolute value of the slope