Chapter 5 - H-O model Flashcards
What is the difference between factor intensity and factor abundance?
Factor intensity measure how factors of production (land, labor and capital) is allocated among the various sectors in the economy)
Factor abundance measures the availability of factors in production.
how much do the economy produce (PPF)?
point on the highest possible isovalue line.
here OC_x,y = Px/Py
what does Biased Expansion of Production Possibilities mean?
when the PPF shits out much more in one direction than in the other
(i.e. more labor in production of cloth (L/K))
what is the abundant factor in an economy
the recourse of which a country has a relatively large supply
small supply of resource = scarce resource
How do you classify country in terms of relative factor abundance?
L/K
(if L/K > L/K = home is labor abundant)
How do you determine a good’s relative factor intensities?
The relative unit labor requirements of both factors in one good
a(LC)/a(KC) > a(LW)/a(KW) = cork is labor intensive.
Resource constraints for capital and labor?
a(KC)Q(C) + a(KF)Q(F) ≤ K
a(LC)Q(C) + a(LF)Q(F) ≤ L
Define the relative supply
The RS curve is the relationship between the relative prices of the goods and the relative quantities supplied of the goods.
Qx/Qy
How do we calculate world RS curve?
RS^W=(Q(C)+Q(C))/(Q(W)+Q(W) )
What is the Rybzynski effect?
An incr. in the input ratio, L/K (FX, immigration) will cause an incr. in the relative production of the good that is labor intensive.
What is the Stolper-Samuelsen theorem?
Trade leads to an increase in the return to a country’s abundant factor and a decrease in a country’s scarce resource.
A rise in the relative (producer) prices of the labour intensive good will make labour better off and capital worse-off, and vice-versa.
What is the H-O theorem?
Countries export what they can most easily and abundantly produce
well-endowment
