[ECON 101] - Final Exam Guide - Ultimate 86 pages long Study Guide!
Document Summary
Lecture 02 - comparative advantage due to productivity differences. 1) gains from specialization (differences in technology or resource endowments) 2) gains from economies of scale (differences in market size: classical trade theory explains trade under the first perspective (the ricardian. Model, the specific factors model, the heckscher-ohlin model) Ricardian: specialization; heckscher-ohlin: economies of scale; specific. Comparative advantage in the ricardian model: the main insights to be gained: If each country exports the goods in which it has a comparative advantage, then all countries can gain from trade. Comparative advantage, not absolute advantage, determines whether trade is beneficial. Opportunity costs measure comparative advantage: identify the opportunity costs, and predict the pattern of trade. The ricardian model: a one-factor economy: basic ingredients (assumptions): Number of industries (goods): 2 (cheese and wine) Key force: differences in technology (the only thing that we allow to be different between countries) Unit labor requirements: labor productivity is modeled through unit labor requirements.
