Notes Feb1 - EC340 Sec. 3 Professor Matusz 2/1/11 Good x is...

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EC340 Sec. 3 Professor Matusz 2/1/11 Good x is capital intensive relative to good y if the amount of capital used per worker to produce good x is more than the amount of capital used per worker to produce good y. In contrast, good y is more labor intensive than good x. Kx/Lx > Ky/Ly Lx/Kx < Ly/Ky (1) If we add capital to the economy, x has the production advantage. (Above) If we add labor to the economy, y has the production advantage. (Below) (2)
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The shape of the curve helps you to determine the capital/labor abundance of a country relative to other countries. For example, the economy in the first graph was relatively capital abundant compared to the economy in the second graph. Conversely, the second graph shows a relatively labor abundant country. K1/L1 > K2/L2 L1/K1 < L2/K2 “Modern Theory of International Trade” Factors of production can easily move between sectors within each country, but cannot move between countries. Both countries have identical technologies.
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Notes Feb1 - EC340 Sec. 3 Professor Matusz 2/1/11 Good x is...

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