04%20Heckscher-Ohlin%20Model,%20Part%201

04%20Heckscher-Ohlin%20Model,%20Part%201 - Heckscher-Ohlin...

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1 1 Heckscher-Ohlin Model, Part 1 • Introduction and Assumptions • The Autarky Economy Equilibrium – Factor Prices and Factor Proportions – Goods Prices and Factor Prices – Resources and Output – The Heckscher-Ohlin (Factor Proportions) Model 2 Assumptions Assumption #1: There are only 2 countries. 1. The United States, U.S., and 2. China, C. 3 Assumptions Assumption #2: There are only 2 goods. 1. Machinery, M, and 2. Clothing, C. 4 Assumptions Assumption #3: There are only 2 factors of production. 1. Labor, L, and 2. Capital, K.
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2 5 Assumptions Assumption #4: Factor mobility. 1. Both factors are freely and costlessly mobile between industries within a country. 2. Both factors are completely immobile between countries. 6 Assumptions Assumption #5: Factor endowments. 1. The U.S. is relatively capital abundant . 2. China is relatively labor abundant . 7 Assumptions Assumption #6: Factor intensities. 1. Machinery is capital intensive. 2. Clothing is labor intensive. 8 Factor Prices and Proportions • In a multi-factor model, producers have room to choose the mix of factors inputs needed for production.
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3 9 Factor Prices and Proportions •An isoquant curve shows the alternative factor input combinations that can be used to produce one unit of (a specific) output.
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This note was uploaded on 02/09/2011 for the course ECON 181 taught by Professor Kasa during the Fall '07 term at University of California, Berkeley.

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04%20Heckscher-Ohlin%20Model,%20Part%201 - Heckscher-Ohlin...

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