Chapter 4 lecture notes - Professor Jeremy Bowling PDF

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Professor Jeremy Bowling...

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Policy Preferences ● Trade○ The dramatic growth of international trade created debate over the costs and benefits of trade openness ○ Creates losers and winners; comparative advantage: the benefit or advantage

of an economy to be able to produce a commodity at a lesser opportunity cost than other entities is referred to as comparative advantage in international trade theory. ○ The Heckscher-Ohlin model is a theory in economics explaining that countries export what can be most efficiently and plentifully produced. This model is used to evaluate trade and, more specifically, the equilibrium of trade between two countries that have varying specialties. Emphasis is placed on the exportation of goods requiring factors of production that a country has in abundance and the importation of goods that the country cannot produce as effectively. ■ At its center, the Heckscher-Ohlin model’s goal is to mathematically explain the means by which a country should operate when resources are imbalanced throughout the world, meaning resources a country lacks are abundant elsewhere, with different countries having different resources in abundance to feed into the global market. ○ Alternate approach to mapping the effects of trade on incomes is specific factors model that allows instead that it can be quite costly to move factors of production between different sectors in the economy ■ That is different types of land, labor skills, and capital equipment often have a very limited or specific use to which they can be put when it comes to making products ■ Real incomes of different individuals are tied very closely to the fortunes of the particular industries in which they make their living ● Immigration ○ Factor proportions analysis p80...