ECON 219 Lecture 5: Notes
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Different trade models: 1) ricardian model -whole concept of comparative & absolute advantages: the heckscher-ohlin model. Explained concept of trading in a comparative concept(advantage). What happens to wage level & pattern of relative productivity. Differences across countries in why trade happens. Ricardian- differences in productivity of labor(due to different technology) Heckscher-ohlin- specific factors model, examines differences in labor, labor skill, physical capital, land. There are always going to be other factors apart why we trade in apart from the basic factors mentioned above. You will now be able to substitute (one factor for another)- this is done to make things easy. For this define the concept of opportunity cost. Opportunity cost- is what factors you forego to produce another good. Opportunity cost measures cost of not being able to produce anything else. Consider production of good a and good b.