36 terms

International Economics Ch. 4

STUDY
PLAY
The specific factors model was developed by
Paul Samuelson and Ronald Jones
The curve of the PPF in the specific factors model represents the
diminishing returns of labor
The fundamental reason that trade potentially benefits a country is that
it expands the economy's choices
Like the simple Ricardian model, the specific factors model
assumes an economy that produces two goods and that can allocate its labor supply between the two sectors
In each sector of a S.F. economy, profit-maximizing employers will demand labor up to the point where
the MPL times the price of the product equals the wage rate
When the price of cloth increases by 3% and the price of food does not change
the output of food falls
For trade to take place, a country must face a world relative price that is
different from the relative price that would prevail in the absence of trade
When opening up to trade, an economy
exports the good whose relative price has increased and imports the good whose relative price has decreased
When an economy is open to trade, the relative price of a good is determined by the
relative supply and demand for the world
Trade has ambiguous effects on
mobile factors
For a trading economy, the budget constraint is
tangent to the PPF at the chosen production point
Within each country that opens itself to international trade
some factor owners gain, but other factor owners lose
Which of the following is NOT an example of the international factor movement?
Direct foreign investment
International trade in intermediate goods**
Labor migration
International borrowing and lending
Movement of labor from a foreign country to the home economy
increases the MPL in foreign
According to the one-od model, international mobility of labor
increases the world output
The Ricardian two-country two-good model predicts that there are potential benefits from trade, but not
the effect of trade on income distribution
International trade can have important effects on the distribution of income because
some resources are immobile in the short run
A factor of production that cannot be used outside of a particular sector of an economy is a(n)
specific factor
The degree of a factor's specificity is directly related to
the amount of time required to redeploy the factor to a different industry
In the specific factors model, a country's production function is _______ because of _______
a curved line ; diminishing marginal returns
Upper right quadrant in the four-quadrant diagram is
PPF
Upper left quadrant in the four-quadrant diagram is
production function for food
Bottom right quadrant in the four-quadrant is the
production function for cloth
Bottom left quadrant in the four-quadrant diagram is the
labor allocation
When a country's labor market is in equilibrium in the specific factors mode, the wage rate
will be the same in both sectors
In the S.F. mode, which will increase the quantity of labor used in food production?
an increase in the price of food relative to that of cloth
An increase in the price of good A, assuming no increase in the price of good B, will cause
good A wages to increase by less than 5%, production of good B to decrease, production of good A to increase
A country not currently engaged in trade would benefit from trade only if
pre-trade and free-trade relative prices are not identical
The overall welfare effects of trade are ____ if _____.
positive; those who gain can compensate those who lose and still be better off
Those who will lose from free trade are _____ factors in sectors that produce goods that are _____.
immobile; also imported
The effect of trade on specialized employees of import-competing industries will be ____ jobs and ____ pay because they are relatively ____.
fewer; lower; immobile
There is a bias in the political process against free trade because
those who lose from free trade are better organized than those who gain.
In modern economies
restrictions on international labor mobility are common.
Immigration into the U.S. over the past century has caused the percentage of immigrants in the U.S. population to
fall steadily until the 1970s and increase thereafter.
MPLc * Pc =
w
Slope of the Production Possibilities Curve =
-MPLf/MPLc
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