09 The Specific Factors Model, Part 1

09 The Specific Factors Model, Part 1 - The Specific...

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1 1 The Specific Factors Model, Part 1 1. Introduction to the Specific Factors Model 2. Assumptions of the Model 3. An Autarky Economy Production Functions Production Possibilities Frontier Prices, Wages, and Labor Allocation Prices and the Return to Capital and Labor 2 Introduction • What is a Specific Factor? – The specific factors model recognizes that there are factors of production that are permanently tied to particular sectors of the economy. 3 Introduction • What is a Specific Factor? –In the short-run , factors may be industry specific because there is no (or very little) possibility of inter-industry substitution (or mobility). –In the long-run , resources can generally be re- deployed between industries so that they can be considered mobile. 4 Assumptions of the Model • Assumptions: – Two countries: Home and Foreign. – Two goods: Manufactures and Food – Three factors of production: • Labor, L,
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2 5 Assumptions of the Model • Assumptions: – Labor is a mobile factor of production and can be used in either industry . – Capital is a specific factor of production used only in the production of manufactures . – Land is a
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09 The Specific Factors Model, Part 1 - The Specific...

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