CHAPTER 4: Comparative Advantage & Endowments

What are the four factors

land, labor, capital, and entrepreneurship

what are factor endowments

amount of land, labor, capital, and entrepreneurship that a country posses & can exploit for manufacturing

how do they impact trade?

( four factors,)

they determine a nation’s competitive advantage determining which stuff to produce efficiently

Hecksher Ohlin Model: Know what it signifies

(HO: Labor endowed economies export labor intensive goods and capital abundant countries export capital intensive goods)

countries should export what uses their cheap resources & import what uses their scarce ones, creating winners & loses from trade

production possibilities curve

curve on a graph that illustrates the possible quantities that can be produced of two products if both depend upon the same finite resource

Same for Stolper Samuelson Theorem: Know the concept, what it means, no need to graph or calculate. (focus is on the income impact of trade)

states that an increase in the price of a good raises the income earned by factors that are used intensively in its production

(vise versa for it falls)

Offshoring

moving some or all of production abroad

Outsourcing

(sourcing somewhere)

means moving some part of production to another firm, either inside the home country or outside

US-China trade case study: What is PRC’s resource endowment?

captive labor market of unskilled & semiskilled workers. (Hukou a.k.a. household registration system)

replacement rate

the average number of kids each woman needs to have so the population stays the same size from one generation to the next

(2.1 ratio)

demographic transition

as a population transitions from agrarian to industrialized, less births required, labor force shrinks, urbanization, raising costs lead to higher affluence but lower birth rates lead to an aging population.