Notes Feb3 - H.S. Grad Some College College Grad College +...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
EC340 Sec. 3 Professor Matusz 2/3/11 Capital Abundant Home Autarky = Expensive Labor, Cheap Capital Trade = Wages (Increase), Return on Capital (Decrease) Labor Abundant Foreign Autarky = Cheap Labor, Expensive Capital Trade = Wages (Decrease), Return on Capital (Increase) Given all the assumptions of the Heckshin-Olin model, the home wage will equal the foreign wage and return to capital at home will equal return to capital foreign with trade. (Factor Price Equalization Theorem) Stolper-Samuelson Theorem An increase in the price of the capital-intensive good relative to the price of the labor-intensive good will increase the real return to capital and reduce the real wage. Likewise, a fall in the price of the capital-intensive good relative to the price of the labor-intensive good will reduce the real return to capital and increase the real wage. Heckshin-Olin Result is that capital abundant country exports capital-intensive good. Real Hourly Wages (U.S.A.) Year H.S. Dropout
Background image of page 1

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

View Full DocumentRight Arrow Icon
Background image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: H.S. Grad Some College College Grad College + Professional 1979 10.06 11.23 12.24 15.52 18.80 1989 8.44 10.21 11.82 15.90 20.36 % Change-16.1-9.1-3.5 2.4 8.3 Re-define the factors of production in the Heckshin-Olin model. Skilled labor and unskilled labor [not capital and labor]. U.S. is relatively abundant in skilled labor compared with most other countries. By H-O Theorem, U.S. has a comparative advantage in producing goods intensive in skilled labor. Skill-Biased Technology Change New technologies entered the workplace that increased the demand for skilled workers relative to unskilled workers. The problem with this explanation is that it cant be shown. Skill-biased technology change would have to be concentrated in skill-intensive sections. Immigration of Unskilled Workers Some people call the factor price of equilibrium theory the price insensitivity theorem. Factor prices not very sensitive to change in factor supplies....
View Full Document

Page1 / 2

Notes Feb3 - H.S. Grad Some College College Grad College +...

This preview shows document pages 1 - 2. Sign up to view the full document.

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