Chapter 5 Summary

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

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

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...
View Full Document

Ask a homework question - tutors are online