TradeLecture07

TradeLecture07 - A Model of a Two-Factor Economy...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
© Ben Zissimos, Vanderbilt University A Model of a Two-Factor Economy Assumptions of the Model An economy can produce two goods; cloth and food. The production of these goods requires two inputs that are in limited supply; labor ( L ) and land ( T ). Production of food is land-intensive and production of cloth is labor-intensive in both countries. Perfect competition prevails in all markets.
Background image of page 1

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

View Full DocumentRight Arrow Icon
© Ben Zissimos, Vanderbilt University A Model of a Two-Factor Economy Assumptions of the Model Production of food is land-intensive and production of cloth is labor-intensive in both countries: - a TC = acres of land used to produce 1 yard of cloth - a LC = hours of labor used to produce 1 yard of cloth - a TF = acres of land used to produce 1 calorie of food - a LF = hours of labor used to produce 1 calorie of food - L = economy’s supply of labor - T = economy’s supply of land
Background image of page 2
© Ben Zissimos, Vanderbilt University A Model of a Two-Factor Economy Input Possibilities in Food Production
Background image of page 3

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

View Full DocumentRight Arrow Icon
A Model of a Two-Factor Economy Factor Intensity In this world of two goods and two factors, food production is land-intensive if, at any given wage-rental ratio, the land-labor ratio used in the production of food is greater than that used in the production of cloth: T F / L F > T C / L C where Example : If food production uses 80 workers and 200 acres, while cloth production uses 20 workers and 20 acres, then food production is land-intensive and cloth production is labor-intensive . C
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 19

TradeLecture07 - A Model of a Two-Factor Economy...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online