International Econ - Chapter 4 - Specific Factors Model

cmarquardt94's version from 2016-09-23 22:31

Section 1

Question Answer
How is the Specific factors model different than the Ricardian Model?specific-factors model has two specific factors and the Ricardian model has just ONE factor of production (Labor)
What are the two factors in the specific-factors model?1.Mobile Factors and 2. Specific Factors
What are the assumptions of the specific-factors model?That the economy produces 2 goods using three factors of production
What are the three factors of production?Labor (L), capital (K), and land (T)
Which factors of production are mobile and which are specific?Labor (L) is the mobile factor, and capital(K) and land(T) are the two specific factors

Section 2

Question Answer
How is the [specific-factors model] different than the [Hecksher-Ohlin model] ?in the [Hecksher-Ohlin model] there are two mobile factors, labor (L) and capital(K) compared to just ONE mobile factor in the [specif-factors model] which is labor(L). Also the [specific-factors model] is a short-run model, and the [Hecksher-Ohlin model] is a long-run model
What are the two main reasons why international trade has strong effects on the distribution of income?1. resources cannot move immediately or without cost from one industry to another 2. industries differ in the factors of production they demand
What is a [short-run] consequence of trade?resources are not able to move immediately or without cost from one industry to another
What is a [long-run] consequence of trade?a shift in the mix of goods a country produces, normally, will reduce the demand for some factors of production, while raising the demand for other factors of production
How can we find an economy's [production possibilities?]since Labor (L) is the only mobile factor, we can just look at how the economy's [output changes] as labor is [shifted from one sector to another]
What is the [marginal product of labor]?the addition to output generated by adding one more person-hour
what is another way to say "the opportunity cost of cloth in terms of food" ?the number of units of food output that must be sacrificed to INCREASE cloth output

Section 3

Question Answer
How do we answer the question: [How much labor wil be employed in each sector (ie. food & cloth sectors)?]we need to look at the supply and demand in the [labor market]
What does the [demand for labor] in each sector depend on?[price of output] and the [wage rate]
What does the [wage rate] depend on?the COMBINED [demand for labor by food and cloth producers]
To determine each sector's (cloth & food) [employment] and [output] what do we need?We need the prices of both sectors (ie. the prices of cloth & food) and the [wage rate]

Section 4

Question Answer
How do you get the [wage rate] in the cloth sector?wage rate, (w) the cloth sector: w = (MPLc * Pc) ---> this is also the [demand curve for labor] in the cloth sector
How would you get the [wage rate] in the food sector?w = (MPLf * Pf) ---> this is also the [demand curve for labor] in the food sector
What is true about the [wage rate] ? the wage rate (w) MUST be the same in both sectors! (ie. must be the same wage rate in cloth sector as it is in food sector)
Why is the [wage rate] the same in both sectors?because of the assumption that labor(L) is freely mobile between sectors
What is also true in terms of the [wage rate] being equal?it means that because labor(L) is a mobile factor, it will move from the [low-wage sector] to the [high-wage sector] until WAGES ARE EQUALIZED
What is another way of saying [total labor demand] ?total labor demand = [total labor employment]
What [requirement] is [wage rate] determined by?total labor demand(total labor employment) = total labor supply