Autarky is a state of being self-sufficient. For example, many countries have adopted a policy of autarky when it comes to national security, water, and foodstuffs (Van Brabant, 2012).
Free trade is a policy which aims at not restricting imports or exports to other countries (De Janvry & Sadoulet, 2015). For example the Mercosur and the European Economic Area.
Gains from international trade
Gains from trade are the benefits enjoyed by the agents after allowing the exercise of voluntary trading with one another (Van Brabant, 2012). A good example is a Canadian economy that specializes in agricultural production since the cost of land is low.
The incomplete markets have more states of nature than the Arrow-Debreu securities. A good example is a quasi-market (De Janvry & Sadoulet, 2015).
Transfer problem (or paradox)
The transfer problem or paradox is a situation where one country transfer its wealth to another until the prices are better and the giver becomes better off while the recipient ends up being worse off (Van Brabant, 2012). A good example is a globally Walrasian stable three agent economy.
Strategic reallocation of endowments
Strategic reallocation of endowments is when economic agents change the endowment's holdings (De Janvry & Sadoulet, 2015). For example, farmers may burn their crops in order to raise the selling price.
Piecemeal reforms are accomplished pieces of reforms in a system (Van Brabant, 2012). A good example is the temporary reforms that followed the Diamond report which was later brought into force.
Welfare improvements are making better the social or the economic situations of the underprivileged people (De Janvry & Sadoulet, 2015). For example surplus savings that is used to finance the education and also training workers.
Tutorial Reading 2. Read and then summarize:
Homogenous of zero degrees is one of the properties of the excess demand function f (p). The f (p) becomes differentiable function when the agent characteristics are smooth. According to Debreu (1970) appealing to the transversely theorem of differential, the topology can be used to solve problems in classic style. This helps to show that any content with regular in all the economies has a simple problem. Looking at most of the economies they have a full rank at every equilibrium hence well defining the comparative statics (Geanakoplos, 1989). The agent's characteristics are the determinants of the excess demand F as well as the endowments hence finally we have the F (e, p). Furthermore, Debreu was able to prove the generic regularity of equilibrium. What is most interesting about this is the attempt to find the definite form and the comparative statics story. Rationality hypothesis of the Arrow-Debreu model usually ends up giving analogs result. The equilibrium price rise may be caused by an increase in the endowment of a particle. This makes the economists look for excess data demand F in order for them to make qualitative predictions.
Tutorial Listening: Go to http://www.youtube.com/watch?v=xRJZWfqWcs0&feature=related
watch, listen to and carefully summarise and think about what you find there.
The video illustrates the world trade benefits to people all over the world. These benefits arise from the thousands of years that people have traded. People have been able to move from one place to another since trade leads to improvement of infrastructure. On the other hand, people all over the world have been able to get the goods and services they want. In addition, the individual markets have grown over the past few years. The world economy has been affected positively by the interaction that has resulted from the trade between people of different countries. World top producers can easily market their products all over the world. World trade has also lead to the formulation of policies that has helped in controlling how the trade will be carried out. This has improved the lives of many both those participating in the trade and also those who support the trade. World trade has also lead to the transfer of ideas between one country and another. Transferring of ideas is facilitated when people of different cultural and economic background come together and intermingle. When such ideas are shared they bring in cohesion and everyone lives with the spirit of brotherhood.
Explain the meaning of the following statement: There is no such thing as a condition free theorem. Why is this statement important in the context of arguments about Globalization and free trade?
According to the saying There is no such thing as a condition free theorem, it shows that the algorithm performs well when being confronted with given problems which later it accounts for all the payments with the promenade that is degraded. This has to take place on all the sets of the problems that are remaining. From this, it puts clear that the objective functions never changes if the optimization is taking place. Hence the aspect of blind search comes in where we get a set of the algorithm. According to Xu et al. (2006), the small vV which has a uniform probability which means that all the functions of F are almost equal. Since the performance is a function of the sequence, it elaborates that all the algorithm has similar performance in terms of distribution. Since globalization is a situation where the whole world becomes like a small village, this theorem is very applicable since it will facilitate the flow of imports and exports. This is truer as free trade is a policy which aims at enhancing the flow of imports or exports to other countries. For example the Mercosur and the European Economic Area. Elaborating on this, an increase in the aggregate endowment of a particular good will lead to poor pathologies. Hence the economist must look for detailed data from the excess demand F to do the qualitative predictions.
Define and give one an Example for the following terms:
Flexible functional form
Flexible functional forms are functional forms having enough parameters where the differentiable functional f* can be twice of f at a given point x* as the second order all in the definition of the domain f and f*. (Cameron & Trivedi, 2013). For example f(x) a0 + aTx + (1/2) xTAx; A = AT
A likelihood function is a function which is made up of parameters of a given data that represents a statistical mode. For example gamma distribution.
Almost ideal demand system
The almost ideal demand system is a system which is used by the economists to study the consumer behavior (Borsch-Supan, 2012). Almost ideal demand system is a form of consumer demand model. For example getting the optimal expenditure allocation that occurs in commodity groups.
Nonparametric testing is a special hypothesis that the population distribution does not have to change as it will be accompanied by particular parameters (Cameron & Trivedi, 2013). For example, a population is said to have a normal distribution where there are two parameters.
Testing simply means to investigate the performance, quality, and reliability by putting it into practice (Borsch-Supan, 2012). For example, there is the software testing, postman testing, and concept testing.
Likelihood ratio test
A Likelihood ratio test is a kind of a statistical test that helps in determining which model is good than the other where we have a special case of another (Cameron & Trivedi, 2013). For example, the Neyman-Pearson lemma that is used to test which competitor is powerful than the other.
Goodness of fit
The goodness of fit is when the data that has been observed corresponds with all the values found in a theory (Borsch-Supan, 2012). For example determining the distribution of different colors of the standard package of milk chocolate M&Ms using a chi-square test.
Theory consistent parameter restrictions
Theory consistent parameter restrictions are parameters used in the analysis of demand relationship which has to be in a linear model (Borsch-Supan, 2012). For example finding the relationship between milk and cheese.
Tutorial Reading 2. Read and then summarise: J.Geanakoplos (2008), ArrowDebreu model of general equilibrium, (in) The New Palgrave Dictionary of Economics, Second Edition, 2008, Edited by S. N. Durlauf and L.E. Blume, starting at the heading V What the model doesnt explain and stopping at the sentence: It seems natural to suppose that as becomes very large
As we have already explained the Arrow-Debreu commodities, then it is easier now to justify that each commodity is much diversified in terms of physical quality, time and location. The Arrow-Debreu economy provides the analysis of the economy, but it cannot provide the analysis of the insurance markets (Geanakoplos, 1989). However, analysis of the insurance markets can only be possible only when involving a benchmark case. The four lines that are active in gripping the general equilibrium considers the preserving of the fundamental neoclassical Arrow-Debreu principles of agent optimization, rational expectations, and market clearing. What is worth noting is that there is no trade in shares of firms when Arrow-Debreu equilibrium is included. According to Geanakoplos (1989), all the prices in the Arrow-Debreu equilibrium hypothesis remains the same even if the individual changes the production plan where they assure the firm owners to agree on firm objectives whatever the case which is to maximize the profit. Otherwise, the trade would never occur if there was a market for company shares since the income that would have been used to purchase becomes perfect substitutes.
The concept comes in since in the incomplete markets, any source of revenue is not a perfect substitute. Another thing that does not take place in the Arrow-Debreu is bankruptcy since all the agents must adhere to their budget constraints. However, in the case of incomplete markets, such cases are treated as Pareto as they accommodate deadweight look of imposing and penalties. Consequently, money does not appear in the Arrow-Debreu model. According to Geanakoplos (1989), borrowing of money does not exist simply because borrowing money from the central bank would afterward force the use of the same money to purchase stock which will at the end lead to the addition of the owner stock from the sales. In addition, all trade in the Arrow-Debreu has to take place at the beginning of time. If the markets in this model are reported late, then no trade would take place. Looking at the general equilibrium of the Arrow-Debreu, it is relentlessly neoclassical. The aspect of relentlessly neoclassical makes it be used in the neoclassical approach.
Explain the meaning of the following statement: There is no such thing as a condition free empirical test. Why is this statement important?
There is no such thing as condition free empirical test since all empirical tests have to be based on some conditions (Dubey & Geanakoplos, 2003). For the better evaluations a driving of pure logic, the various conditions must be part and parcel of the test. Empirical tests must comprehend and be limited to the doctrine that goes along with the empirical exceptional. On the other hand, most of the empirical test usually involves some scientific experiments that are repeated now and then. The empirical test also goes hand in hand with the hypothesis. The reason as to why each empirical test has to function under and be followed by conditions is to serve the purpose of defining and clarifying hypothesis. Empirical tests are very applicable when it comes to finding the actual empirical data that are u...
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