Economics: Economics and Comparative Advantage Essay

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1) Income-expenditure approach: An approach to analyzing an economy by focusing on the income-expenditure cycle. Keynesian Macro models and base-multiplier models are both examples. Input-Output models that break the economy down by industry and product do not belong to this class. This method is biased towards big cities because by this measure they’re seen to be the most productive and therefore attract the most investment.

2) Input-output modelling: A way of thinking about productions systems by specifying the set of inputs required for each output (usually) in the form of a matrix. A complete input-output model has a list of the inputs for every output in the economy that is being modelled. Most outputs are also ”intermediate” inputs for other processes. Typically an input-output model is constructed with fixed inputs to make the system conveniently simple. Input-output analysis is essentially a theory of production, based on a particular type of production function. Specifically productions exhibits a) constant returns to scale and b) no substitutability among inputs. You can talk about the “intermediate” inputs and how they come from places like Sudbury but are sent off (along with some of the revenue) to other places where the final product is made.

3) Staple: A basic output of a region that is an important input to production or consumption in another region. Over the course of the country’s development, Canadian staples have included codfish, timber, wheat, and minerals and most recently oil. The ”Staple Thesis” is credited to Canadian economists W.A. Mackintosh and later expanded by Harold Innis

4) Staples thesis: A theory of development for settler economies like Canada. in which development begins by harvesting and exporting resources to metropolitan economies, then expanding the scope of production either ”downstream” to include processing or upstream to include the inputs needed for producing the resources. Some argue that exportation of raw materials can trigger sustainable economic growth – while others argue that reliance on commodity export can constitute a development trap. The staples model is any model that incorporates the important assumptions of the staples thesis into it.

5) Absolute advantage: When one producer can produce at a lower cost expressed in inputs than another producer, the low-cost producer is said to have an absolute advantage.

6) Comparative advantage: When the opportunity cost of producing output A expressed in terms of output B is lower for a one producer than for another, the low op-cost producer is said to have a comparative advantage. Notice that you can have a comparative advantage when you do not have an absolute advantage.

7) Revealed Comparative Advantage (RCA): This is a measure of concentration in an export product. Basically RCI is a modified location quotient... An RCA greater than 1 means a region has a revealed Comparative Advantage in that industry. When one producing country or region has a larger fraction of its total exports in good A than the world as a whole has, that country is said to have revealed that it has a comparative advantage in producing good A.

8) Location quotient (LQ): is a ration of ratios. It compares the share of employment in a particular industry for a region to the share of the industry in the whole economy. An LQ greater than 1 means a region has a relative strength in that industry. When we calculated the LQ for mining in Sudbury in 2002 it was an astonishing 17!

9) Economic base: In the class of income-expenditure models, the base is considered to include income from outside source including exports, exogenous investment, outside government spending, and sometimes a fraction of autonomous local expenditure tied to export production.

10) Basic: Those economic activities in a region that earn export revenue and therefore provide the income that supports the rest of the economy. Mining or auto production is mainly
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