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ECO230Y1 (4)
Chapter 4

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Junchul Kim

Chapter 4: Ricardian model assumes labour to be the only factor of production; however in the real world, trade also reflects diff in countries resources; e.g. Canada exports forest products to US not bc its lumberjacks are more productive relative to their US counterparts but bc sparsely populated Canada has more forested land per capita than the US. Heckscher-Ohlin Theory Factor-Proportions Theory: intl trade is largely driven by diff in countries resources; emphasizes the interplay bw the proportions in which diff factors of production are available in diff countries and the proportions in which they are used in producing diff goods. When there are 2 factors of production, there maybe some room for choice in the use of inputs; the PPF is no longer a straight line; thus the opportunity cost of producing an extra unit of good X in terms of good Y is NOT constantit is low when the economy produces little good X and a lot of good Y, but high when the economy produces a lot of good X and little good Y. (when the factors of production cannot be substituted for one another, t
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