International econ - {my Chapter 4} - Specific factors model & Income Distribution

cmarquardt94's version from 2016-09-27 01:39

Section 1

Question Answer
There are two main reasons why international trade has strong effects on the distribution of income:Factors of production cannot move instantaneously and costlessly from one industry to another and Changes in an economy's output mix have differential effects on the demand for different factors of production
International trade often has strong effects on the distribution of income within countries which...?often produces losers as well as winners
A useful model of income distribution effects of international trade is..?the specific-factors model
In the Specific factors model, differences in resources can cause...? countries to have different relative supply curves, and thus cause international trade
in the specific-factors model, factors specific to export sectors in each country...?gain from trade
in the specific-factors model, factors specific to import-competing sectors...?lose from trade
Mobile factors that can...?work in either sector may either gain or lose
Trade nonetheless produces overall gains in the sense that those who gain...?could in principle compensate those who lose while still remaining better off than before.

Section 2

Question Answer
Opening a country to trade has...?strong effects on the distribution of income within a country
In the Ricardian model, there is only one factor of production (labor), so we cannot study the..?effect of trade on income distribution
the specific factors model is a ...?short-run model
Factors that are specific to sectors...?cannot relocate across sectors
Recall that there are potential gains from trade whenever there is...?a cross-country variation in autarky prices
In the Ricardian model, differences in autarky prices come from...?differences in technologies across countries
In the [specific-factors model] an increase in the relative price of an industry's output will hve an ambiguous impact on...?the welfare of the mobile factor
In the [specific-factors model] an increase in the relative price of an industry's output will increase the... ?real rental earned by the factor specific to that industry
In the [specific-factors model] an increase in the relative price of an industry's output will decrease the...?real rental of factors specific to other industry
In the specific-factors model trade benefits a country by...?expanding choices

Section 3

Question Answer
The specific factors model allows trade...?to affect income distribution
What are the assumptions of the specific-factors model?-Two goods and -Three factors of produuction -perfect competition prevails in all markets
in the Specific factors mode, what are the three factors of production?labor (L), capital (K), and land (T for terrain)
Out of the three factors of production, which one is the mobile factor?Labor(L)
Land(T) and capital(K) are both...?specific factors used only in the production of one good
The shape of the production function reflects...?he law of diminishing marginal returns

Section 4

Question Answer
In each sector of a specific factors​ economy, profit-maximizing employers will demand labor up to the point whereThe marginal product of labor times the price of the product equals the wage rate
When workers from a country (Home) are leaving/migrating to another country (Foreign), what does that do?land-to-labor ratio [rises] in Home, meaning: Home's [labor productivity] will rise ALSO the land-to-labor ratio falls in foreing(so their productivity falls)
We expect labor to migrate from Home to Foreign until...? the [real wages] are equalized in the two countries
In the specific-factors mode economy that produces two goods: cloth and food, and we assume that the country is open to trade. So at the higher relative price of Pc/Pf^2...the economy does what?economy EXPORTS CLOTH and IMPORTS FOOD]
In the Specific factors model you should export...?the good with the higher relative price

Section 5

Question Answer
As such (pretrade), an economy can only...? * consume what it [produces]
production (assuming full employment) is ALWAYS confined to...?the production possibility frontier (PPF)
consumption is confined to....?the production possibility frontier(PPF)