Econ 503 Exam 1 Study Guide
Econ 503 Exam 1 Study Guide ECON 503 001
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ECON 503 001
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This 3 page Study Guide was uploaded by Tulsi on Sunday September 18, 2016. The Study Guide belongs to ECON 503 001 at University of South Carolina taught by William Hauk in Fall 2016. Since its upload, it has received 64 views. For similar materials see International Trade Economics in Economics at University of South Carolina.
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Date Created: 09/18/16
Exam 1 Study Guide Sunday, September 18, 206:35 PM First "Golden Age" of International Trade: 1880s - 1913 Definitions -Steamships and Railroads -Telegraphs -Gold Standard Comparative Advantage -British Empire Specialization according to opportunity cost -Colonial Empires Imports Second "Golden Age" of InternationalTrade: 1948-present? -planes Good or service produced in a foreign country and sold in "this" country -telephones Exports -internet -container shipping Good or service produced in this country and sold in a foreign country -GATT --> WTO Foreign Direct Investment (FDI) is not the same as Foreign Portfolio Investment -US Hegemony FDI: a firm in one country owning and operating a firm in another country "a global movement of capital" Horizontal FDI: takes place between relatively wealthy countries, done for market access reasons Vertical FDI: typical goes from rich to poor countries as part of an integrated global supply chain Bilateral Trade Balance = Value of Exports to One Country - Value of Imports from that Country Trade to GDP ratio = Models Ricardian Model of Trade -differences in production costs across countries are due to "technology" -one factor of production is labor -2 goods: wine and cloth -labor is mobile across sectors and not mobile across countries -2 countries: home and foreign Autarky equilibrium: -workers are mobile across sectors -wages are equalized across sectors w/P c MPL = ceal wage returns on cloth w/P w MPL = weal wage returns on wine Nominal wage: w w = P xMPL = P xMPL c c w w Q c Q c Autarky equilibrium (no trade) Autarky equilibrium with trade Indifference curve Slope = Slope = Indifference curve PPF: production possibilities frontier PPF: production possibilities frontier Qw Qw Pw/Pc will increase once trade starts Home exports wine-->> wages in wine industry rise, all workers go to wine industry Foreign exports cloth ->> wages in cloth industry rise, all workers go to cloth industry Prices converge to Pw/Pc Study Guide Exam 1 Page 1 Prices converge to Pw/Pc World Market for Wine Pw/Pc Quantity of wine traded Specific Factors Model of Trade -Two goals: agriculture and manufacturing -Three factors of production: land, labor, capital In autarky equilibrium -land and labor: agriculture -both goods are produced, so wages are equalized -labor and capital: manufacturing w A w M -two countries: home and foreign Pa * MPLa = Pm * MPLm Production function: Qm = Am *F(K, Lm) MPLa/MPLm = Pm/Pa Costs: w*Lm; r k k rk: rental rate of capital Pm * MPLm = Wm If Am goes up, MPLm goes up If (K/Lm) goes up, MPLm goes up Q A If Am goes up, MPKm goes up If (Lm/K) goes up, MPKm goes up If Aa goes up, MPLa goes up If (La/N) goes up, MPN goes up, rngoes up (return on land ownership) N is land If (N/La) goes up, MPLa goes up rn= Pa*MPNa w = Pa*MPLa a QM World Price Line Labor Market Q A Consumption after trade Production after trade QM After trade, Pm/Pa goes up Pm/Pa< world price < foreign country price Total Supply of Labor Study Guide Exam 1 Page 2 Labor Market Total Supply of Labor Heckscher-Olin Model -2 goods (shoes and computers) -2 factors of productions (capital and labor) -2 countries (home and foreign) -Both factors of production are mobile across sectors -both countries use the same production technology -consumer preferences are the same in both countries Factor intensity (applies to sectors) Factor Returns in H-O Model -an industry uses a factor of production intensively if it uses that factor in a greater proportion than other industries When we open to trade: w/r goes down Lc/Kc and Ls/Ks increase w/Pc = MPLc -both decrease because Lc/Kc rises w/Ps = MPLs -both decrease bc Ls/Ks rises Workers will be unambiguously harmed by trade Economy wide demand for labor went down In each industry, relative amount of labor used relative to capital went up r/Pc = MPKc -both rise b/c Lc/Kc rises r/Ps = MPKs -both rise b/c Ls/Ks rises Capital owners unambiguously benefit from trade Stulper-Samuelson (1941) Theorem If all of the assumptions of the H-O model hold, then when a country opens to trade, owners of its abundant factor of production will gain and owners of its scarce factor of production will lose. Study Guide Exam 1 Page 3
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