Log in
HomeClass Notes1,200,000US530,000

01:220:102 Lecture Notes - Lecture 21: Autarky, Economic Equilibrium, Comparative Advantage

43 views3 pages
Verified Note
School
Rutgers University
Department
Economic
Course
01:220:102
Professor
goldband

For unlimited access to Class Notes, a Class+ subscription is required.

01:220:102 verified notes
21/22View all
20

01:220:102 Lecture Notes - Lecture 20: Monopolistic Competition, Demand Curve, Product Differentiation

21

01:220:102 Lecture Notes - Lecture 21: Autarky, Economic Equilibrium, Comparative Advantage

22

01:220:102 Lecture Notes - Lecture 22: Fixed Cost, Marginal Product

Document Summary

In the united states, imports have been greater than exports since 1980s. The importance of imports and exports to a country depends on the percentage of said country"s gdp. Gdp = consumption + investment + government spending + taxes + (exports - imports) Exports are a relatively low part of the us gdp(~12%) Absolute advantage: a country is the most efficient producer of that product. Comparative advantage: when a country can produce a product with a lower opportunity cost. Country with abundant supply of factor of production will have a comparative advantage of in goods whose production is intensive in that factor. Factors of production vary from product to product, resulting in countries having a comparative advantage in only some products. Differences in technology: some country has developed a particular technology that explains its comparative advantage. Increasing returns to scale: country gets more efficient as it grow will lead to afew large producers.

Get access

Grade+
$40 USD/m
Billed monthly
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
10 Verified Answers
Class+
$30 USD/m
Billed monthly
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
7 Verified Answers

Related Documents

01:220:102 Chapter Notes - Chapter 8: Qst, Import Quota, Economic Surplus
maroonwoodchuck476
01:220:102
Final Exam
Study Guide
01:220:102 Study Guide - Final Guide: Factor Endowment, Autarky, Absolute Advantage
skyoyster85
01:220:102
Final Exam
Study Guide
01:220:102 Study Guide - Final Guide: Factor Endowment, Autarky, Absolute Advantage
skyoyster85

Related Questions

Mention if the following statements are true or false. Explain clearly why, using ideas and concepts.

a. Under free trade, one country gains at the expense of the other.

b. The theory of comparative advantage states that free trade benefits all countries.

c. The Neo-classical trade theory states that trade arises due to different amounts of labor and capital in a country.

d. The H-O theory states that trade arises due to different PPFs in a country.

e. Under free trade, prices fall, so trade becomes easier.

f. A country should not have any imports and should increase exports if it wants to increase its employment levels.

g. Adam Smith recommended very strong government regulation of trade.

h. A country with higher labor productivity than another country will have a comparative advantage in the production of all goods.

i. The Theory of absolute advantage explains producer and consumer equilibriums under free trade.

j. Developed countries do not gain under free trade with developing countries.

1. Use the information in the table below to answer the following questions.

  US Argentina
wheat 300 20
beef 100 20

(a) Does either country have an absolute advantage in the production of wheat or beef? Explain.

(b) What is the opportunity cost of wheat in each country?

(c) What is the opportunity cost of beef in each country?

(d) Analyze comparative advantage and opportunities for trade between the U.S. and Argentina.

2. Suppose that China is labor-abundant country and U.S. is capital-abundant country. iPad is capital-intensive and cloth is labor-intensive. Show that U.S. exports iPad after opening up to trade using Heckscher-Ohlin model.

3. Explain the immiserizing growth using standard trade model.

4. Consider the following Heckscher-Ohlin model: there are two countries, America and China, two goods, high-tech manufactures and low-tech manufactures, and two factors of production, skilled labor and unskilled labor. America is skilled-labor abundant and China is unskilled-labor abundant. High-tech manufactures are skilled-labor intensive and low-tech manufactures are unskilled-labor intensive. What happens to the price of high-tech manufactures relative to the price of low-tech manufactures in America following trade?

 

<Heckscher-Ohlin Theory>

Suppose that US has 2400 units of capital and 1600 units of labor, and that Sri Lanka has 600 units of capital and 560 units of labor. Also, suppose that production of each car requires 40 units of capital and 16 units of labor, and that production of each cloth requires 2 unit of capital and 4 units of labor. Suppose that the autarky wage rate and rent to capital in US each equal 30, and that the autarky wage rate and rent to capital in Sri Lanka are 10 and 50 respectively.

a. Which country is labor abundant and which one is capital abundant based on the physical definition of factor abundance? Explain. Which country is labor abundant and which one is capital abundant based on the price definition of factor abundance? Explain. Which commodity is labor intensive and which one is capital intensive? Explain.

b. What is the autarky relative price of a car (to a cloth) in each country? Which country has comparative advantage in which product? Does your answer illustrate the Heckscher-Ohlin theorem? Explain. Also, state this theorem in words.