International Trade/Finance Exam 2- Ferdi pt.2

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

What happens to marginal product of labor when labor increases?

It decreases (diminishing returns)

If labor leaves a sector, what happens to MPL in that sector?

It increases

If labor enters a sector, what happens to returns to the specific factor there?

It increases

If labor leaves a sector, what happens to returns to the specific factor there?

It decreases

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

If price of manufactured goods increases, who benefits in SF?

Capital owners (manufacturing sector)

If price of agricultural goods decreases, who loses in SF?

Landowners (agriculture sector)

If RK increases more than PM, what happens to RK/PM?

It increases (capital owners better off)

If RT decreases while PA stays same, what happens to RT/PA?

It decreases (landowners worse off)

Why are workers ambiguous in SF?

Because they consume both goods with different price changes

Which factor is tied to manufacturing in SF?

Capital

Which factor is tied to agriculture in SF?

Land

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

In HO, what determines comparative advantage?

Relative factor abundance

Capital-abundant country specializes in what type of goods?

Capital-intensive goods

Labor-abundant country specializes in what type of goods?

Labor-intensive goods

In HO, if capital is abundant, what happens to returns to capital after trade?

They increase

In HO, if labor is scarce, what happens to wages after trade?

They decrease

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

If a country exports computers, what must be true about its autarky price of computers?

It was lower than the world price

If a country imports shoes, what must be true about its autarky price of shoes?

It was higher than the world price

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 the slope of the price line represent?

Relative price of goods

If world price is steeper than autarky price line, what does that mean?

Relative price increased after trade

Exports in a graph are measured how?

Distance between production and consumption

Imports in a graph are measured how?

Distance between consumption and production

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

Why does EWRD shift?

Because labor reallocates toward exporting industry

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

What is autarky?

No trade equilibrium

What is the key benefit of trade in HO graphs?

Consumption outside the PPF

What does point C always represent?

Higher consumption than production

If production and consumption are different points, what must exist?

Trade (exports and imports)

What is the intuition behind income over price?

It measures real purchasing power

Why do capital owners gain from trade in SF?

Export prices rise increasing their real returns

Why do landowners lose from trade in SF?

Import prices fall reducing their real returns