lec 5

Question 1

what are some common properties of comparitive advantage models?

Answer 1

ability to redistribute income yet lack of

aggregate welfare gains from trade

biased growth

simple models

Question 2

why are aggregate gains achieved by trade?

Answer 2

consumption utside of ppf

consumers are allowed lower prices and real wages increase (purhasing powa)

Question 3

what is better for growth? export based trade or import based trade?

Answer 3

import based trade increases a countries terms of trade, increasing its welfare and decreasing foreign welfare

main effect is expnsion of ppf which is paramount

no empirical evidence that expor based tade is worse for an economy due to the expanisoon of its ppf

Question 4

what are the movements in factors of production

Answer 4

labour migration

The transfer of financial assets through international
borrowing and lending

Transactions of multinational corporations involving
direct ownership of foreign firms

Movements of factors of production are even more
politically sensitive than movements of goods and services
(trade), are often restricted

Question 5

what happens in specific factors model with an increase of the labour suppy?

and h-o model

Answer 5

Production possibilities expand

➢Wages drop

➢Domestic workers lose from immigration, hence unions often
oppose immigration

➢Returns to specific factors increase

in h-o, effects of immigration are changing quantities not wages/prices