07%20The%20Specific%20Factors%20Model,%20Part%202

07%20The%20Specific%20Factors%20Model,%20Part%202 - The...

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1 1 The Specific Factors Model, Part 2 A Free Trade Economy Equilibrium An Autarky Review The Free Trade Economy Equilibrium 2 Autarky Equilibrum 0 F VMPL A , W A VMPL F , W F 0 A W A W F L A , L F P A * MPL A P F * MPL F 3 Autarky Equilibrium VMPK A , R K K A VMPT F , R T T F K A T F R K R T P F * MPT F P A * MPK A 4 Autarky Equilibrium Q A Q* A Q F Q* F P A / P F RD US = RD* J RS* J RS US (P A /P F ) US (P* A /P* F ) J ,
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2 5 Free Trade Equilibrium • Once free trade begins, relative goods prices in the 2 countries always converge. – The relative price of automobiles falls in the U.S. – The relative price of automobiles rises in Japan. 6 Free Trade Equilibrum Q A + Q* A Q F + Q* F P A / P F RD US , RD* J RS* J RS US (P A /P F ) US (P* A /P* F ) J 7 The Gains from Trade Q A Q F Q F0 Q A0 CIC 0 Slope = - (P A / P F ) US PPF “A” 8 The Gains from Trade Q A Q F Q F0 Q A0 CIC 0 Slope = - (P A / P F ) J “A”
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3 9 The Distribution of Income • What happens to the income of: – Workers? – Capital owners?
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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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07%20The%20Specific%20Factors%20Model,%20Part%202 - The...

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