Costs_of_Globalization__Lesson_16_

Costs_of_Globalization__Lesson_16_ - Winners and Losers All...

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1 Lesson 16 1 Winners and Losers All workers in a Ricardian model benefit from trade Casual observation and empirical evidence suggest that some workers are harmed by trade How can we model the economy so that trade harms some while benefiting others? Lesson 16 2 Simplified version of Ricardo-Viner (specific-factors) model Assume two goods ( X and Y ) Assume two factors of production: -labor that can only be used to produce X ( L X ) -labor that can only be used to produce Y ( L Y ) Lesson 16 3 The full employment conditions L XX X aQ L = L YY Y = X X LX L Q a = Y Y LY L Q a =
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2 Lesson 16 4 X Q Y Q X LX L a Y LY L a The Production Possibilities Frontier Lesson 16 5 X Q Y Q X LX L a Y LY L a All points encompassed by the dashed rectangle are feasible Lesson 16 6 X Q Y Q X LX L a Y LY L a But both types of labor are fully employed only at when production is at northeast corner of the PPF
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3 Lesson 16 7 X Q Y Q X LX L a Y LY L a At full employment, the quantity of X produced does not depend on relative price Lesson 16 8 X Q X S X LX L a Y X P P Lesson 16 9 X Q X S Add demand to determine relative price: X D 2 X LX L a Y X P P
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4 Lesson 16 10 Recall properties of consumption possibilities frontier Slope = X Y P P The production point always lies on the
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Costs_of_Globalization__Lesson_16_ - Winners and Losers All...

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