Chapter 3 IE

capital/labor ratio

a country’s ratio of capital inputs to labor inputs

distribution of income

the distribution of wages earned across a country

dynamic comparative advantage

a changing pattern in comparative advantage; governments can establish policies to promote opportunities for changes in comparative advantage over time

economies of scale

when increasing all inputs by the same proportion results in a greater proportion of total output

factor-endowment theory

asserts that a country exports those goods that use its abundant factor more intensively

factor-price equalization

free trade’s tendency to cause cheap factors of production to become more expensive, and the expensive factors of production to become cheaper

Heckscher-Ohlin theory

Heckscher-Ohlin theory differences in relative factor endowments among nations underlie the basis for trade

home market effect

home market effect

increasing returns to scale

when increasing all inputs by the same proportion results in a total output to increase by a greater proportion

industrial policy

government policy that is actively involved in creating comparative advantage

interindustry specialization

when each nation specializes in a particular industry in which it enjoys a comparative advantage

interindustry trade

the exchange between nations of products of different industries

intraindustry specialization

the focusing on the production of particular products or groups of products within a given industry

intraindustry trade

intraindustry trade two-way trade in a similar commodity

Leontief paradox

the phenomenon of exports being less capital intensive than import-competing goods

magnification effect

an extension of the Stolper-Samuelson theorem, which suggests that the change in the price of a resource is greater than the change in the price of the good that uses the resource relatively intensively in its production process

product life cycle theory

many manufactured goods undergo a predictable trade cycle; during this cycle, the home country initially is an exporter, then loses its competitive advantage vis-à-vis its trading partners, and eventually may become an importer of the commodity

specific factors

specific factors factors that cannot move easily from one industry to another

specific-factors theory

considers the income-distribution effects of trade when factor inputs are immobile among industries in the short run

Stolper-Samuelson theorem

an extension of the theory of factor-price equalization, which states that the export of the product that embodies large amounts of the relatively cheap, abundant resource makes this resource more scarce in the domestic market

theory of overlapping demands

nations with similar per capita incomes will have overlapping demand structures and will likely consume similar types of manufactured goods

transportation costs

the costs of moving goods from one nation to another