The_Heckscher-Ohlin_Model__Lesson_21_

The_Heckscher-Ohlin_Model__Lesson_21_ - Proof of...

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1 Lesson 21 1 Proof of factor-price-equalization theorem In this lesson, we “prove” the factor-price- equalization theorem The “proof” is by way of example, and is therefore not completely general Generalization requires more advanced mathematical techniques Lesson 21 2 Recall our familiar notation: the amount of labor used to produce one unit of LX a X = the amount of labor used to produce one unit of LY a Y = Lesson 21 3 Recall our familiar notation: the amount of capital used to produce one unit of KX a X = the amount of capital used to produce one unit of KY a Y =
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2 Lesson 21 4 Recall our familiar notation: the wage rate for labor w = the rental rate for capital (sometimes called the return to capital) r = the price of good X PX = the price of good Y PY = Lesson 21 5 Assume both goods are produced (part of the premise of the factor-price-equalization theorem) Then perfect competition drives profit to zero in both sectors Lesson 21 6 cost of capital + cost of labor = price
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This note was uploaded on 09/14/2009 for the course ECON 340 taught by Professor Leidholm during the Summer '08 term at Michigan State University.

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The_Heckscher-Ohlin_Model__Lesson_21_ - Proof of...

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