Winners and Losers within a Country

Winners and Losers within a Country - o in the short run,...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Winners and Losers within a Country Trade does hurt large groups within an economy. We can use the Heckscher-Olin theory to examine the effects of trade on factor prices. Suppose that wheat is cheap and cloth is expensive in the U.S. and that trade opens up with the rest of the world. U.S. exports wheat and imports cloth the price of wheat rises and cloth prices fall in the U.S. the U.S. produces more wheat and less cloth shifts in the demand for factors of production o wheat: big increase in the demand for land and an increase in the demand for labor o cloth: decrease in the demand for land and a big decrease in the demand for labor
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: o in the short run, factors are unable to move between sectors rise in rents on wheat-growing land; rise in wages for farm workers fall in rents on cotton-growing land; fall in wages for textile workers o in the long run, factors are mobile between sectors rise in rents on all land (compared to pre-trade levels) fall in wages for all workers (compared to pre-trade levels) • in the rest of the world, opposite changes happen so that rents fall and wages rise in the rest of the world in the long run So, some are absolutely better off and some worse off as a result of free trade....
View Full Document

This note was uploaded on 11/22/2011 for the course FIN FIN1100 taught by Professor Bradrifkin during the Fall '09 term at Broward College.

Ask a homework question - tutors are online