Int Econ Ch 4

Front 1

I. Who Gains and Who loses Within a Country (short and long run)

Back 1

b. Short Run effects of Opening Trade
i. All groups in rising sector, export product, gain
ii. All groups in declining sector, importing product, lose
c. Long Run Factor Price Response
i. Wages are lowered in the US (wheat producer) while they are higher in the rest of the world

Front 2

Who Gains and Who loses Within a Country (net gains for both countries)

Back 2

i. Winners: US Land owners, Foreign workers
ii. Losers: US workers, Foreign Land owners

Front 3

Why will us wheat workers receive a pay cut

Back 3

becuase more people in the cloth industry will convert to wheat...with inc in supply, wages dec

Front 4

What is the crucial step for a country that initially has cheap wheat and expensive cloth before trade, that opens up to world trade

Back 4

For each unit of cloth sacrificed, many workers and a small amount of land laid off; extra wheat demands few workers and much land.

Front 5

Three Implications of the H-O Theory
a. The Stolper-Samuelson Theorem

Back 5

i. An event that changes product prices in a country unambiguously raises the real returns to the factor used intensively in the rising-price industry and lowers the real returns to the factor used intensively for the falling price industry in the long run, regardless of which goods the sellers of the two factors prefer to consume.

Front 6

Three Implications of the H-O Theory
b. The Specialized-Factor Pattern

Back 6

i. The more a factor is specialized, or concentrated, into the production of exports, the more it stands to gain from trade. Conversely, the more a factor is concentrated into the production of the importable good, the more it stands to lose from trade.

Front 7

Three Implications of the H-O Theory
c. The Factor-Price Equalization Theorem

Back 7

i. Free trade will equalize not only commodity prices but also the prices of individual factors between the two countries, so that all laborers will earn the same wage rate and all units of land will earn the same return in both countries even if factors cannot migrate between countries.

Front 8

Does Hecksher-Ohlin Explain Actual Trade Patterns?
a. The Leontief Paradox

Back 8

i. In 1947 Leontief, an economist, tried to test the H-O Theory and found that the while the United States should be exporting capital abundant/labor scarce products it was actually exporting labor abundant goods and importing capital abundant goods. After later tests and calculations it was found that this was not true.

Front 9

b. Factor Endowments
i. See Figure 4.3 for a chart of the World’s Factor Endowments
Does Hecksher-Ohlin Explain Actual Trade Patterns?
b. Factor Endowments
c. International Trade

Back 9

b. Factor Endowments
i. See Figure 5.3 for a chart of the World’s Factor Endowments
c. International Trade
i. The unequal distribution of factors is mirrored in a country’s pattern of trade.

Front 10

Do Factor Prices Equalize Internationally?

Back 10

a. According to the H-O Theory, trade will equalize the price of each factor across countries, however in real life, they aren’t equalized, but they are much more similar than they would be without trade.