International Econ - Chapter 3 Summary - The Ricardian Model

cmarquardt94's version from 2016-09-26 05:49

Section 1

Question Answer
The Ricardian Model, the simplest model that shows...?Ricardian model shows how differences between countries give rise to trade and gains from trade
What is the only factor of production in the Ricardian Model?Labor!
In the Ricardian Model, countries differ only in...?the [productivity of labor] in different industries
In the Ricardian Model, countries will export goods that....?their labor produces relatively efficiently
In the Ricardian Model, countries will import goods that...?their labor produces relatively inefficiently
In the Ricardian Model, a country's production pattern is determined by?comparative advantage!
In the Ricardian model, what are the two ways to show that trade benefits a country?1) We can think of trade as an indirect method of production(ie. instead of producing a good itself, a country can produce another good and trade for the desired good)(but production of indirect good we are trading must require less labor than it would take to directly produce the good we want) 2. We can show that trade enlarges a country's consumption possibilities (which implies gains from trade)

Section 2

Question Answer
In the Ricardian Model, what does the distribution of the gains from trade depend on ?the relative prices of the goods countries produce
In the Ricardian Model, to determine these relative prices, we must look at...?the relative world supply and demand for goods
In the Ricardian Model, what does the relative price also imply?a relative wage rate
In the Ricardian Model, the proposition that trade is beneficial is unqualified, what does that mean?Means that there is no requirement that a country be "competitive" or that the trade be "fair"
In the Ricardian Model, what are the three commonly held beliefs about trade that are Wrong?(1) a country gains from trade even if it has lower productivity that its trading partner in all industries (2) trade is beneficial even if foreign industries are competitive only because of low wages (3) Trade is beneficial even if a country's exports embody more labor than its imports
In the Ricardian Model, what is the only difference when we extend the [one-factor], [two-good] model to a WORLD of many commodities?only difference is that we need to focus now directly on the [relative demand for labor] to determine [relative wages]
A many-commodity model can be used to show the important point that.....?transportation costs can give rise to a situation in which some goods are nontraded