Term
| 8 Assumptions of H-O-S Model |
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Definition
1) Two countries with identical preferences
2) Two factors in fixed amounts in each country and each country has different relative endowments of inputs.
3. Factors are completely mobile between industries but not between countries
4. Two final goods
5. Technology identical across countries
6. Factor Intensity Assumption: One industry is more intensive in one of the inputs at all factor prices than the other industry
7. Zero transportation costs
8. Perfect Competition in all markets |
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Term
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Definition
| A country has a comparative advantage in the good that makes relatively intensive use of the country's relatively abundant factor |
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Term
| Factor Price Equalization Theorem |
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Definition
| Free international trade will cause factor prices across countries to become more equal. If both countries produce both goods with free trade and there are no FIR"s, then factor prices will be equal across countries. |
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Term
| Rybcyznki Theorem Definition + Use |
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Definition
Def: At constant world prices, if a country experiences an increase in the supply of one factor, it will produce more of the product intensive in that factor and less of the other.
Use: relates changes in endowments to changes in production |
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Term
| Stolper-Samuelson Theorem (2 Definitions) |
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Definition
1) if the relative price of a good increases, holding factor supplies constant, then the nominal and real return in terms of both goods to the factor used intensively in the production of that good increases, while the nomial and real return in terms of both goods to the other factor decreases.
2) An increase in the relative price of the labor intensive good will increase the wage rate relative to both commodities and reduce the rental rate relative to both commodity prices |
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Term
| Main Insight of H-O-S Model |
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Definition
| There are gains from trade even when technology is different if difference economies have different relative endowments |
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Term
| Constant returns to scale |
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Definition
| When a firm doubles the amount of inputs of production, its output would exactly double etc.. |
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Term
| Things Impeding Factor Price Equalization Theorem |
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Definition
1) Differences in resources
2) Barriers to trade
3) Differences in technology |
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Term
| Examples of trade restrictions |
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Definition
1) tariff=fixed tax per unit
2) ad valorem= percentage of price tax per unit
3) quota=restriction on number of imports
4) Subsidy on either production or exports
5) "minimum content" requirement |
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