ECON 3150 Lecture Notes - Lecture 1: Factors Of Production, Production Function, Opportunity Cost
17 Jan 2016
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ECON 3150 Lecture 1 5/3/2011 9:11:00 PM
smaller countries has larger percentage of national income in trade.
Factors affecting trade:
1.size of economies and
larger the economies, the more to trade
2. distances of countries.
3. cultural affinity
4. Geography
Gravity Model:
In its basic form, the gravity model assumes that only size and distance
are important for trade in the following way:
Tij = A x Yi x Yj /Dij
where
Tij is the value of trade between country i and country j
A is a constant
Yi the GDP of country i
Yj is the GDP of country j
Dij is the distance between country i and country j
Why trade?
• Market size & distance between markets
• Difference in production factors, including labor, labor skills,
physical capital, land or other factors
• Economies of scale
Recardian model
• production function = relation between input and output
• difference in technology
• opportunity cost
Heckscher-Ohlin model
• labour difference
•
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