Chapter 2 - The Ricardian Model Flashcards
(26 cards)
Imported
purchased from other countries
exporting
selling to other countries
technology
ability to manufacture products
resources
labor, capital, and land
offshoring
producing various parts of a good in different countries and assembling it in a final location
proximity
how close
Ricardian Model
focuses on technology differences to explain trade
trade pattern
the products a country imports and exports
natural resources
land and minerals
labor resources
laborers of carious skill and education levels
capital
machinery and structures
factors of productions
land, labor, and capital used to produce goods and services
absolute advantage
when a country has the best technology for producing a good
comparative advantage
if countries specialize in producing goods where they have a lower opportunity cost, then there will be an increase in economic wellfare
marginal product of labor (MPL)
extra output obtained by using one more unit of labor
production possibilities frontier (PPF)
a curve depicting all maximum output possibilities for two or more goods given a set of inputs (ie resources, labor)
opportunity cost
the amount of one good that must be given up to obtain one more unit of another good
indifference curve
A curve showing combinations of two goods that a person or country can consume and be equally satisfied
utility
level of usefulness obtained from a good
relative price
price of one good in terms of another, the ratio of two prices
international trade equilibrium
when the relative price of a good is the same in two countries
world price line
the range of consumption possibilities a country can achieve by specializing in a good
gains from trade
the ability of a country to obtain higher utility for its citizens under free trade
export supply curve
shows the amount a country wants to export at various price levels
