lec04-eco101-11

lec04-eco101-11 - InternationalTrade Lecture4 c...

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Unformatted text preview: InternationalTrade Lecture4 c Marc-AndreasMuendler UniversityofCalifornia,SanDiego October4,2011 4.ComparativeAdvantageduetoEndowmentDifferences Econ101, c M.Muendler SpecificFactorsandLaborProductivity TheSpecificFactorsModelisalsocalledtheRicardo-Vinermodel WiththeRicardomodel,itsharesthefactthatlaborproductivitydif- fersacrosssectors Novelexplanation:endowmentsofthespecificfactordeterminelabor productivityintheindustrythatusesthespecificfactor Differentinsight:laborproductivityisnolongerconstantbutdrops withlargeremployment 4.ComparativeAdvantageduetoEndowmentDifferences Econ101, c M.Muendler ConstantReturnstoScale Capital Labor Output Capital Functionalform: Y = L K 1- (for = 1 / 2 ) 4.ComparativeAdvantageduetoEndowmentDifferences Econ101, c M.Muendler TheProductionPossibilityFrontier Q M Home food output H o m e m a n u fa c tu r e s Q F L M L F 45 O L L Manufacturing employment F o o d s e c to r e m p lo y m e n t Q K L M M (,) =Q M Q T L F F (,) =Q F PPF 4.ComparativeAdvantageduetoEndowmentDifferences Econ101, c M.Muendler MarginalProductofLaborandLaborDemand Diminishingmarginalreturnsoflaborinbothsectors (reflectedincurvatureofproductionfunctions) Food: MPL F = Q F ( T,L F ) L F =(1- ) A ( T/L F ) Manufacturing:MPL M = Q M ( K,L M ) L M =(1- ) A ( K/L M ) Demandforlabor:Profit-maximizingfirmsemploylaboruntilmarginal revenuefromanadditionalperson-hourequalsitscost, P F MPL F ( L F )= w and P M MPL M ( L M )= w. 4.ComparativeAdvantageduetoEndowmentDifferences Econ101, c M.Muendler MarginalProductofLaboranditsAllocation Howmuchlaborwillbeemployedineachsector?Howmuchlaborwillbeemployedineachsector?...
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lec04-eco101-11 - InternationalTrade Lecture4 c...

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