06%20The%20Specific%20Factors%20Model,%20Part%201

06%20The%20Specific%20Factors%20Model,%20Part%201 - The...

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1 1 The Specific Factors Model, Part 1 Introduction and Assumptions The Autarky Economy Equilibrium 2 Introduction • What is a Specific Factor? –In the long-run , resources can generally be re- deployed between industries so that they can be considered mobile . –In the short-run , some factors of production may be industry specific because there is no (or very little) possibility of inter-industry substitution (or mobility). 3 Assumptions Assumption #1: There are only 2 countries. 1. The United States, US, and 2. Japan, J. 4 Assumptions Assumption #2: There are only 2 goods.
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2 5 Assumptions Assumption #3: There are only 3 factors of production. 1. Labor, L, 2. Capital, K, and 3. Land, T. 6 Assumptions Assumption #4: Factor mobility. 1. Labor is a mobile factor of production and can be used in either industry . 2. Capital is a specific factor of production used only in the production of automobiles . 3. Land is a specific factor of production used only in the production of food . 7 Production Functions • The economy’s production for automobiles depends on how much labor and capital are used in the automobile sector. 8
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06%20The%20Specific%20Factors%20Model,%20Part%201 - The...

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