ch2_stu - Chapter 2 Trade and Technology: The Ricardian...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Chapter 2 Trade and Technology: The Ricardian Model 2.1 Introduction Let’s begin this chapter by first looking at some common myths which still exist even today, and try to understand whether these statements are true. 1. Discussion Some common myths which still exist: Free trade: good or bad Trade deficits are bad Free trade only helps the poor countries Free trade destroys jobs Free trade creates jobs 2. Free trade creates jobs Reasons for Trade a. _________________________________________ b. _________________________________________ c. _________________________________________ d. _________________________________________ e. _________________________________________ f. _________________________________________ g. _________________________________________ 3. Benefits of the framework The Ricardian model is a framework for explaining _______________, and it also helps to explain _____________________ . It is also a useful framework for understanding why it is not possible to set equal wages all over the world or to set the same minimum wage in Mexico and the United States, for example. Three Useful Insights: a. We can explain __________________________________ . b. We can determine ______________________________ c. The framework helps us to understand __________________________________ 2.2 Assumptions of Ricardian Model (1) Two countries: domestic and foreign. (3) ____________ is the only resource needed for production (4) Labor productivity is ___________________. (5) ___________________________ varies across countries due to differences in technology.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 (6) The supply of labor in each country is constant. (7) Labor markets are ______________________. (8) ______________________________________. 2.3 Production Possibilities Frontier 1. Unit Labor Requirement and Marginal Product of Labor (MPL) A unit labor requirement is the number of hours of labor required to produce one unit of output. Marginal Product of Labor (MPL) measures the output that results from hiring one more unit of labor all other factors remaining constant. ___________ is the unit labor requirement for wine in the domestic country. ___________ is the unit labor requirement for cloth in the domestic country. A high unit labor requirement means _____________ labor productivity. Denote the labor supply in the domestic country as L. 2. Production Possibilities Frontier Because labor supply is constant (by assumption), let the total number of labor hours worked in Home be a constant number L. We can then derive the production possibility frontier The production possibility frontier (PPF) of an economy shows the maximum amount of goods that can be produced for a fixed amount of resources. If
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/12/2011 for the course ECON 4633 taught by Professor Jingpinggu during the Spring '11 term at Arkansas.

Page1 / 13

ch2_stu - Chapter 2 Trade and Technology: The Ricardian...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online