0321316762_IM_04 - Chapter 4 Resources Comparative...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 4 Resources, Comparative Advantage, and Income Distribution T Chapter Organization A Model of a Two-Factor Economy Prices and Production Choosing the Mix of Inputs Factor Prices and Goods Prices Resources and Output Effects of International Trade Between Two-Factor Economies Relative Prices and the Pattern of Trade Trade and the Distribution of Income Factor Price Equalization Trade and Income Distribution in the Short Run Case Study: North-South Trade and Income Inequality The Political Economy of Trade: A Preliminary View The Gains from Trade, Revisited Optimal Trade Policy Income Distribution and Trade Politics Box: Income Distribution and the Beginnings of Trade Theory Empirical Evidence on the Heckscher-Ohlin Model Testing the Heckscher-Ohlin Model Implications of the Tests Summary Appendix: Factor Prices, Goods Prices and Input Choices Choice of Technique Goods Prices and Factor Prices
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
14 Krugman/Obstfeld • International Economics: Theory and Policy, Seventh Edition T Chapter Overview In Chapter 3, trade between nations was motivated by differences internationally in the relative productivity of workers when producing a range of products. In Chapter 4, this analysis goes a step further by introducing the Heckscher-Ohlin theory. The Heckscher-Ohlin theory considers the pattern of production and trade which will arise when countries have different endowments of factors of production, such as labor, capital, and land. The basic point is that countries tend to export goods that are intensive in the factors with which they are abundantly supplied. Trade has strong effects on the relative earnings of resources, and tends to lead to equalization across countries of prices of the factors of production. These theoretical results and related empirical findings are presented in this chapter. The chapter begins by developing a general equilibrium model of an economy with two goods which are each produced using two factors according to fixed coefficient production functions. The assumption of fixed coefficient production functions provides an unambiguous ranking of goods in terms of factor intensities. (The appendix develops the model when the production functions have variable coefficients.) Two important results are derived using this model. The first is known as the Rybczynski effect . Increasing the relative supply of one factor, holding relative goods prices constant, leads to a biased expansion of production possibilities favoring the relative supply of the good which uses that factor intensively.
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern