3-SpecificFactors

3-SpecificFactors - Polit ical Economy of I nst it ut ions:...

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Click to edit Master subtitle style 2/22/10 Lecture 3: Specific Factors Model Krugman and Obstfeld CH 3,4 Magee et al. Political Economy of Institutions: Trade
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2/22/10 Two Factors Ricardian model One factor – labor Hecksher-Ohlin Two factors: labor and land Both mobile
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2/22/10 Specific Factors Only L is mobile T is fixed in F production K is fixed in M Production
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2/22/10 The production function for manufactures is given by QM = QM ( K , LM ) where: QM is the economy’s output of manufactures K is the economy’s capital stock LM is the labor force employed in manufactures The production function for food is given by QF = QF ( T , LF ) where: QF is the economy’s output of food The Specific Factors Model
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2/22/10 The full employment of labor condition requires that the economy-wide supply of labor must equal the labor employed in food plus the labor employed in manufactures: LM + LF = L The Specific Factors Model
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2/22/10 QM = QM ( K , LM ) The Production Function for Manufactures The Specific Factors Model Labor input, LM Output, QM
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The shape of the production function reflects the law of diminishing marginal retur ns . Adding one worker to the production process (without increasing the amount of capital) means that each worker has less capital to work with. Therefore, each additional unit of labor will add less to the
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This note was uploaded on 02/21/2010 for the course ECON 330 taught by Professor Iorio during the Spring '10 term at USC.

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3-SpecificFactors - Polit ical Economy of I nst it ut ions:...

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