Chapter 2 Part 2
In the previous Section, we set up the assumptions necessary to create a
basic economic model of production and demand.
Assumptions of the Basic Model
1. All economic agents (e.g. firms, consumers, government), exhibits
The Production Possibilities Frontier and Comparative Advantage
The Basic Trade Model (Husted and Melvin Chapter 2)
The Classical Trade Model (Husted and Melvin Chapter 3)
The H-O Trade Model (Husted a
Thus far we have studied the Classical model to explain comparative
advantage. Given the rather simplistic assumptions on which the Classical
model is based, we turn our attention to the Heckscher-Ohlin (HO) theory
The HO model allo
In this section we look at empirical tests of trade models to see if they are
accurate and conclusions that we can make.
First, we study what is known as the Leontief paradox (1947) - finds using
input-output tables that U.S. exports tend to be
The Classical Model of International Trade
In the previous section we constructed a basic model of an economy
operating under autarky.
Now we add to our seven basic assumptions to allow for international
trade. We will begin with a discussion
Chapter 2 Part 1
GDP = C+I+G+NX
General Equilibrium Model
Assumptions that allow us to build a general equilibrium model of an
economy that engages in international trade.
An example of a simple model is that the price of a good is
determined by the de