International Econ - 3.2 - A One Factor Economy

cmarquardt94's version from 2016-09-21 19:41

Section 1

Question Answer
WITHOUT TRADE, what is true about the relative prices of goods?without trade, the relative prices of goods are EQUAL to their relative unit labor requirements
What do the {endpoints} on a production possibility frontier (PPF) indicate?the endpoints show us the {maximum} amount of each product a country can produce
How do you find the {maximum amount} of a good that an economy can produce?take...(total number of available labor hours (L)) / (the goods UNIT LABOR REQUIREMENT)
As within any economy, everyone in an Economy (ie. home or foreign) will want to work in whichever industry...?offers the higher wage rate!
In the single - factor Ricardian Model, the wage rate is the same as?the income per hour of labor
How do we find the {wage rate} per hour of a good?you do: (price per unit of the good) / (unit labor requirement of the good)
If we have to goods: {steel} and {canvas} and we know their unit labor requirements as: {aLS} and {aLC}---When will all the workers want to work in the (Canvas Sector)?when: (Pc / Ps) > (aLC / aLS)
So in the two-good model (assuming the two goods are: [A] and [B]) ->How would we find the opportunity cost of [A] ?Opportunity Cost of [A] = unit labor requirement[A] / unit labor requirement[B]

Section 2

Question Answer
What happens in an economy (Home), with two goods, WHEN there is an absence of international trade?it means Home will have to produce BOTH goods for itself BUT (this will only happen if workers have NO PREFERENCE as to where they work)
When do workers have No Preference as to where they work?ONLY when wages are equal across industries
In the Absence of International Trade, When will Home produce both goods({A} & {B}) ?Only when the wage rates are equal OR saying the same thing when: (P{A} / P{B}) = (aL{A} / aL{B})