WednesdayFebruary 13

WednesdayFebruary 13 - Econ 335 1 Wednesday February 13 Notes Econ 335 Econ 335 2 Ricardian Model of Production and Trade Assumptions – There are

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Unformatted text preview: Econ 335 1 Wednesday February 13 Notes: Econ 335 Econ 335 2 Ricardian Model of Production and Trade Assumptions – There are two countries producing two goods and using one input (labor) – Markets are competitive: firms are price takers – Static world: technology is constant and there are no learning effects – Labor is perfectly mobile: it can easily move back and forth between industries (but no across countries) Econ 335 3 TABLE 3.1 Output per Hour Worked Econ 335 4 Heckscher-Ohlin (HO) Theory • Argument: A country’s factors of production (country’s endowments of inputs) used to make each good give rise to productivity differences between countries – Factor abundance versus factor scarcity : when a country enjoys a relative abundance of a factor, the factor’s relative cost is less than in countries where the factor is relatively scarce – A country’s comparative advantage lies in the production of goods that use relatively abundant factors Econ 335 5 TABLE 4.1 An Example of Factor Abundance • Canadian capital-labor ratio: K can / L can is 2 / 10 or 1 / 5 • U.S. capital-labor ratio: K us / L us is 50 / 150 or 1 / 3 • Since the U.S.’s capital-labor ratio is higher, it is the capital abundant country: (K U.S. / L U.S. > K Can. / L Can....
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This note was uploaded on 09/01/2008 for the course ECON 335 taught by Professor Seck during the Spring '08 term at CSU Fullerton.

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WednesdayFebruary 13 - Econ 335 1 Wednesday February 13 Notes Econ 335 Econ 335 2 Ricardian Model of Production and Trade Assumptions – There are

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