3 Intl Econ Notes

3 Intl Econ Notes - Intl Econ Notes 4/6/09 Comparative...

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Int’l Econ Notes 4/6/09 Comparative advantage: what is a country relatively good at? o Developed this idea in context of Ricardian model first (looked only at MPL) o Can get gains from trade Trade and income distribution o Shocks that might hit an economy: diminished terms of trade A shock might hurt a country but not every country Another model will help us understand where motivations of labor come from China: out of ag and into manufacturing o Realistic model: China will not specialize exclusively in one or the other but probably produce some of both A model of the global economy: trade, migration, FDI, and its effects Income distribution: there have been big changes in distribution of income in the United States o The income distribution has widened o Could globalization be the cause of this widening? Age 55 is average peak in earnings How much does income increase from one additional year of education: about 7% per year of your life o This is why colleges can increase tuition! Specific Factors Model Called this b/c each sector has a factor that it uses exclusively (ag will use land and manufacturing will use physical capital; labor moves back and forth between these two sectors) This is short run model b/c in long run can move land and capital btw sectors o Can invest working capital (used to make land arable) into manufacturing but this process would take a long time o In short run, land and capital cannot move between sectors o Land and capital will be fixed in each industry o But we will not model transition of factors between industries Once you invest in capital, its difficult to get rid of it (that’s why its called fixed capital) (and it loses its value very quickly; think of a new car) so to ‘move it over time’ one must let it depreciate and take $$ you would’ve invested in maintenance and using it elsewhere Labor is mobile factor (think of it as homogenous) In specific factors model, have three types of income earners: land owners, capitalists, and workers o We’ll look at how changes in econ affect income of these three groups o B4 had single factor mkt but now have mkt for capital and mkt
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3 Intl Econ Notes - Intl Econ Notes 4/6/09 Comparative...

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