maam dungca ppt 4-6

Specific Factor Model

A model that explains how trade affects income

distribution.

Perfect Competition

A market condition assumed in the model

where perfect competition prevails in all

markets.

Factors of Production

The resources used to produce goods,

consisting of labor, capital, and land.

Labor (L)

A mobile factor of production that can move

between sectors.

Capital (K)

A specific factor used only in the production of

cloth.

Land (T)

A specific factor used only in the production of

food.

Specific Factors

Factors of production used only in the

production of one good.

Specific Factors

Factors of production used only in the

production of one good.

Mobile Factor

A factor of production that can move between

sectors.

Production Function

A function that shows the quantity of a good

that can be produced given certain inputs.

Marginal Product of Labor (MPL)

The increase in output that corresponds to an

extra unit of labor.

Law of Diminishing Marginal Returns

The principle that each additional unit of labor

adds less output than the previous unit when

the amount of capital remains unchanged.

Production Possibilities Frontier (PPF)

A curve showing the production possibilities of

an economy.

Labor Allocation

The distribution of labor between different

production sectors.

Demand for Labor

The amount of labor employers demand based

on the value produced by an additional hour of

work.

Equilibrium Wage

The wage determined where the labor demand

curves of the two sectors intersect.

Income Distribution

The way income or economic gains are

distributed among different factors of

production.

Gains from Trade

The benefits a country receives from

international trade by expanding its choices.

Redistribution of Income

The process of transferring income from those

who gain from trade to those who lose.

Political Economy of Trade

The study of how trade affects different groups

and how trade policies balance their gains and

losses.

Safety Net

Government income support provided to

cushion the losses of groups hurt by trade or

other changes.

International Labor Mobility

The movement of workers across countries in

search of higher wages.

Heckscher-Ohlin Model

A trade model explaining that countries export

goods that intensively use their relatively

abundant factors of production and import

goods that intensively use their relatively

scarce factors.

Production Possibilities

The possible combinations of goods an

economy can produce using its available

resources.

Opportunity Cost

The cost of producing more of one good in

terms of the production of another good that

must be given up.

Marginal Productivity

The additional output produced by an

additional unit of a resource.

Rybczynski Theorem

If a factor of production increases, the supply

of the good that uses that factor relatively

intensively increases, while the supply of the

other good decreases.

Value of Production (V)

The value of the goods produced by an

economy, based on their respective prices and

quantities.

Isovalue Line

A line representing a constant value of

production.

Relative Price

The price of one good in comparison with the

price of another good.

Rental Rate (r)

The rate paid when renting capital.

Wage (w)

The payment made to labor.

Trade in the Heckscher-Ohlin Model

Trade that causes relative prices to converge

between countries.

Convergence of Relative Prices

The movement of relative prices toward equal

levels among countries that trade.

Heckscher-Ohlin Theorem

An economy has a comparative advantage in

producing and exporting goods that intensively use its relatively abundant factors of production

and importing goods that intensively use its

relatively scarce factors.

Comparative Advantage

The ability of an economy to produce a good at

a lower opportunity cost compared with

another good.

Cost of Production

The cost of producing a good, which depends

on the wages paid to labor, the rent paid to

capital, and the quantities of labor and capital

used.

Stolper-Samuelson Theorem

If the relative price of a good increases, the

real wage or rental rate of the factor used

intensively in producing that good increases,

while the real wage or rental rate of the other

factor decreases.

Real Wage

The wage of labor in relation to the prices of

goods.

Factor Price Equalization

The prediction that free trade equalizes factor

prices among countries that trade.

Income Inequality

The unequal distribution of income, such as the

difference between the wages of skilled and

unskilled workers.

Factor Ratios

The proportions of factors of production used in

producing goods.

Technology

A factor that affects the productivity of

production resources and therefore the wages

and rental rates paid to them.

Standard Trade Model

A model used to analyze international trade,

including changes in terms of trade, economic

growth, trade policies, and international

borrowing and lending.

Terms of Trade

The price of exports relative to the price of

imports.

Welfare

The economic well-being of a country.

Export-Biased Growth

Growth that expands a country's production

possibilities disproportionately in its export

sector.

Import-Biased Growth

Growth that expands a country's production

possibilities disproportionately in its import

sector.

Import-Competing Sectors

Industries that compete with imported goods.

Import Tariffs

Taxes levied on imports.

Export Subsidies

Payments given to domestic producers that

export.

Domestic Producers

Businesses or producers operating within a

country.

Domestic Consumers

Consumers who purchase goods within their

own country.

Relative Supply (RS)

The supply of one good in relation to another

good.

Relative Demand (RD)

The demand for one good in relation to another

good.

Price Wedge

The difference created between prices in world

markets and prices in domestic markets by

import tariffs and export subsidies.

Relative Price and Supply Effects of a Tariff

The effects of an import tariff on the relative

prices of goods and the willingness of domestic

producers to change their production.

Effects of an Export Subsidy

The effects of an export subsidy on domestic

relative prices, production, and consumption.

International Borrowing and Lending

The process of borrowing and lending between

countries, analyzed using current and future

consumption.

Current Consumption

The consumption of goods in the present.

Future Consumption

The consumption of goods at a future time.

Intertemporal Production Possibility

Frontier

A special production possibility frontier that depicts

different possible combinations of current output

and future output.

Real Interest Rate (r)

The interest rate used to determine the amount that

must be repaid in the future when borrowing.

Principal

The original amount borrowed before interest is

added.

Interest

The additional amount paid on top of the principal

when borrowing.