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Chapter 5 Summary

Chapter 5 Summary - Chapter 5 Summary International trade...

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Unformatted text preview: Chapter 5 Summary - International trade is of growing importance to the United States and of even greater importance to most other countries. International trade, like trade among individuals, arises from comparative advantage: the opportunity cost of producing an additional unit of a good is lower in some countries than in others. Goods and services purchased abroad are imports; those sold abroad are exports. Foreign trade, like other economic linkages between countries, has been growing rapidly, a phenomenon called globalization.- The Ricardian model of international trade assumes that opportunity costs are constant. It shows that there are gains from trade: two countries are better off with trade than in autarky.- In practice, comparative advantage reflects differences between countries in climate, factor endowments, and technology. The Heckscher-Ohlin model shows how differences in factor endowments determine comparative advantage: goods differ in factor intensity, and countries tend to export goods that are...
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