lec04-eco101-10

lec04-eco101-10 - InternationalTrade Lecture4 c...

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Unformatted text preview: InternationalTrade Lecture4 c Marc-AndreasMuendler UniversityofCalifornia,SanDiego October5,2010 4.ComparativeAdvantageduetoEndowmentDifferences Econ101, c M.Muendler SpecificFactorsandLaborProductivity • TheSpecificFactorsModelisalsocalledtheRicardo-Vinermodel • WiththeRicardomodel,itsharesthefactthatlaborproductivitydif- fersacrosssectors • Novelexplanation:endowmentsofthespecificfactordeterminelabor productivityintheindustrythatusesthespecificfactor • Differentinsight:laborproductivityisnolongerconstantbutdrops withlargeremployment 4.ComparativeAdvantageduetoEndowmentDifferences Econ101, c M.Muendler TheProductionPossibilityFrontier Q M Home food output H o m e m a n u fa c tu r e s Q F L M L F 45 O L L Manufacturing employment F o o d s e c to r e m p lo y m e n t Q K L M M (,) =Q M Q T L F F (,) =Q F PPF 4.ComparativeAdvantageduetoEndowmentDifferences Econ101, c M.Muendler MarginalProductofLaborandLaborDemand • Diminishingmarginalreturnsoflaborinbothsectors (reflectedincurvatureofproductionfunctions) • Food: MPL F = ∂Q F ( ¯ T,L F ) ∂L F =(1- α ) · A · ( ¯ T/L F ) α • Manufacturing:MPL M = ∂Q M ( ¯ K,L M ) ∂L M =(1- α ) · A · ( ¯ K/L M ) α • Demandforlabor:Profit-maximizingfirmsemploylaboruntilmarginal revenuefromanadditionalperson-hourequalsitscost, P F · MPL F ( L F )= w and P M · MPL M ( L M )= w. 4.ComparativeAdvantageduetoEndowmentDifferences Econ101, c M.Muendler MarginalProductofLaboranditsAllocation • Howmuchlaborwillbeemployedineachsector? • Laborismobile.So,wagesareequalinbothsectorsinequilibrium, P F · MPL F ( L F )= P M · MPL M ( L M )= w. • Thewageratewillbesuchthat...
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This note was uploaded on 10/21/2010 for the course ECON 1530 taught by Professor Ohly during the Spring '10 term at Dartmouth.

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lec04-eco101-10 - InternationalTrade Lecture4 c...

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