International Trade/Finance Exam 2- Ferdi

What factors are mobile in the SF model?

Labor only

What factors are specific in the SF model?

Capital (K) and Land (T)

Is the SF model short-run or long-run?

Short-run

Purchasing power of capital owners in manufacturing?

RK / PM

Purchasing power of landowners in agriculture?

RT / PA

If labor moves into manufacturing, what happens to MPK?

It increases

If labor moves into manufacturing, what happens to MPL in agriculture?

It increases

If labor moves into manufacturing, does each machine have more or less labor?

More labor

Who benefits from trade in the SF model?

Owners of the export sector

Who loses from trade in the SF model?

Owners of the import-competing sector

Are workers guaranteed to gain in the SF model?

No (ambiguous)

What determines if workers gain or lose in SF?

What goods they consume more of

If capital owners benefit in manufacturing, what must happen to RK/PM?

It increases

In SF, are outcomes determined by sector or factor?

Sector

Are factors mobile in the HO model?

Yes, all are mobile

Is HO short-run or long-run?

Long-run

What determines trade in the HO model?

Factor endowments (K vs L)

What does a country export in HO?

Goods that use its abundant factor

Who benefits from trade in HO?

Owners of abundant factor

Who loses in HO?

Owners of scarce factor

Are workers' outcomes ambiguous in HO?

No

What determines worker outcomes in HO?

Whether labor is abundant or scarce

SF vs HO — which is short-run?

SF

SF vs HO — which has all factors mobile?

HO

SF — gains determined by what?

Sector

HO — gains determined by what?

Factor (abundance)

Workers in SF vs HO?

SF = ambiguous, HO = based on factor abundance

What does point A represent?

Autarky equilibrium

What does point B represent?

Production after trade

What does point C represent?

Consumption after trade

What happens to production after trade?

Moves toward comparative advantage good

What happens to consumption after trade?

Moves to higher utility

How do you calculate exports?

Production minus consumption

How do you calculate imports?

Consumption minus production

Exports of computers in diagram?

0 to QC3

Imports of shoes in diagram?

QS3 to QS2

What does EWRD stand for?

Economy-Wide Relative Demand

What is EWRD mathematically?

Sum of labor demand across sectors

After trade, EWRD shifts where?

Toward export sector

What does W/R represent?

Relative wage

What does L/K represent?

Labor to capital ratio

Which model uses W/R vs L/K graph?

Heckscher-Ohlin

What is the Home export supply curve?

HXSC

What is the Foreign import demand curve?

FMDC

What determines world price?

Intersection of HXSC and FMDC

What is K/L?

Capital per worker

Another way to say K/L?

Machines per worker