International econ - Chapter 5 summary - Resources and Trade-The Heckscher-Ohlin Model

cmarquardt94's version from 2016-09-26 07:50

Section 1

Question Answer
What do we need to do to uderstand the role of resources in trade?we develop a model in which goods are produced using two factors of production (these two goods differ in their factor intensity)
What do we mean when we say"The two goods differ in their factor intensity"?meaning at any given [wage-rental ratio], production of one of the goods will use a higher ratio of capital to labor than production of the other good
As long as a country produces both goods, there is a ...?one-to-one relationship between the [relative prices of goods] and the [relative prices of factors used to produce the goods]
What happens when there is a rise in the [relative price] of the labor-intensive good?it will shift the distribution of income in favor of labor (the real wage of labor will rise in terms of both goods) (while the real income of capital owners will fall in terms of both goods)
An increase in the supply of one factor of production ...?expands production possibilities, but in a strongly biased way

Section 2

Question Answer
A country with a large supply of one resource relative to its supply of other resources is..?abundant in that resource
A country will tend to produce relatively more of goods that...?use its abundant resources intensively
What is the basic Heckscher-Ohlin theory of trade?Countries tend to export goods that are intensive in the factors with which they are abundantly supplied
changes in relative prices of goods have what kind of effect on the relative earnings of resources?changes in relative prices of goods have VERY STRONG EFFECTS on the relative earnings of resources
This also says that trade changes...?relative prices
Why does international trade have strong income distribution effects?because [changes in relative prices of goods has strong effects on relative earnings or resources] and because [trade changes relative prices]

Section 3

Question Answer
Owners of a country's abundant factors...?gain from trade BUT the owners of scarce factors lose.
Increasing trade integration between developed countries and developing countries could potentially...?explain rising wage inequality in developed countries
What does empirical evidence suggest has had the greatest role in driving wage inequality?technological change rewarding skill
What does empirical evidence say about the Heckscher-Ohlin model?Empirical evidence is mixed on it
What does the Heckscher-Ohlin model do a good job of?it does a good job of predicting the pattern of trade between developed and developing countries