DIŞ TİCARET

Labor theory of value The theory assumes that the price of a commodity is determined by the amount of labor going into the production of the commodity.

The Neo-Classical Trade Theory postulates that as long as the relative commodity prices are different, there is always an incentive for beneficial trade. In other words, the differences in relative commodity prices induce international trade between countries

In the international trade analysis, production possibilities frontier (PPF) represents the total supply of the trading country.  It is the boundary between the combination of two commodities that can be produced and those that cannot

Marginal rate of substitution (MRT): It is the rate at which a person or a country
will give up the commodity measured at the Y axis to get an additional unit of commodity measured at the X axis.

One of the commodities is labor-intensive and the other one is capital-intensive in both countries

The Heckscher-Ohlin Theory stands on twelve simplifying assumptions:
1. Two countries, two commodities and two factors of production.

2. One of the commodities is labor-intensive and the other one is capital-intensive in both countries.

3. One of the countries is labor-abundant and the other one is capital-abundant.

4. Technology is the same in both countries.

5. There is constant returns to scale in the production of both commodities.

6. There is incomplete specialization in the production in both countries.

7. Demand preferences are the same in both countries.
8. There is perfect competition in the commodities and the factor markets in both countries.

9. There is free movement of factors of production within each country but no free movement of factors of production between countries.

10. There is free trade between the trading countries.

11. There is full employment in all resources in both of the trading countries.

12. International trade between the trading countries is balanced.

Constant returns to scale refers to the same amount of output increase with the increase within the factors of production.

Characteristics of a Perfectly Competitive Market:

-There are many firms producing a homogenous commodity.

-There are many consumers.

-It’s easy to enter in and exit out.

-Firms and consumers are well-informed.

Magnification effect :It postulates that a change in the price of a commodity leads to a relatively more change on the income of the factor used intensively in its production in the same direction.

There is full employment in all resources in both of the trading countries: This assumption denotes that there are no unemployed resources or factors of production within the trading countries. Thus, taking the international factor immobility assumption into consideration with this assumption together, the production of a commodity can only be increased in the expense of a decrease in the production of the other commodity.

Bertil Ohlin won the Nobel prize in economics in 1977. Correct answer is A.

Indifference curve (I) represents the total demand of a country. Correct answer is B.

Opportunity cost is the highest cost of the preferred alternative. Correct answer is C.

The Heckscher-Ohlin Theory stands on twelve simplifying assumptions. Correct answer is D.

The Heckscher-Ohlin Theory assumes that there are only two countries, two commodities, and two factors of production on all over the world. The assumption is sometimes referred to 2+2+2 or 2 by 2 by 2. Correct answer is E.

In a perfectly competitive market or simply in perfect competition, there are many firms that are producing a homogeneous commodity. Thus, the commodities within the market are identical in every respect. There are many consumers who are ready to buy the commodities that are produced identically. As there are no restrictions imposed, it’s easy for the new firms to enter into the market and for the existing firms to exit out from the market. The participants of the market, the firms and the consumers are well-informed about the prices and the facts related with the market. Correct answer is A.

Monopolistic competition is a market type in which many firms produce similar but differentiated commodities and compete with each other. Producing a slightly different commodity than the commodity of a competing firm is called product differentiation. Correct answer is B.

Oligopoly is a market type in which small numbers compete with each other. The firms within an oligopolistic market can either produce almost identical commodities or differentiated ones. Correct answer is C.

Trade triangle gives the pattern of trade between trading countries under the international relative prices. Correct answer is D.

Stolper-Samuelson Theorem deals with the distribution of income effects of international trade within a trading country. Correct answer is E.