Econ 503 Week 3 Notes
Econ 503 Week 3 Notes ECON 503 001
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ECON 503 001
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This 4 page Class Notes was uploaded by Tulsi on Sunday September 11, 2016. The Class Notes belongs to ECON 503 001 at University of South Carolina taught by William Hauk in Fall 2016. Since its upload, it has received 5 views. For similar materials see International Trade Economics in Economics at University of South Carolina.
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Date Created: 09/11/16
Week 3 Tuesday, September 6, 21:21 PM 9/6/16 QA QM Labor Market Total Supply of Labor Q Home country has a comparative advantage in manufacturing: A When we open to trade: Export manufactured good Import agricultural good Pm/Pa increases Home country incompletely specializes in manufacturing Consume at higher indifference curve Pm/Pa< world price < foreign country price Manufacturing with Trade Labor Market -Pm goes up Week 3 Page 1 Manufacturing with Trade Labor Market -Pm goes up -capital stays the same -workers increase -MPLm goes down -total output goes up -Lm/Km increases (more workers per unit capital) -MPLm decreases Agriculture with Trade -Pa stays the same but goes down relative to Pm -workers decrease -land stays the same -output goes down -La/Na decreases (labor per unit land) -MPLa increases Total Supply of Labor Real wages with trade w = Pm * MPLm w/Pm = MPLm w = Pa * MPLa w/Pa = MPLa The effect of trade on real wages for workers is AMBIGUOUS Trade and Return on Capital rK= Pm * MPKm rK/ Pm = MPKm rK/Pa = Pm/Pa * MPKm Capital owners can buy more of the manufactured good They can also buy more of the agricultural good Trade is unambiguously good for capital owners Trade and Return on Land N = Pa * MPNa rN/Pa = MPNa rN /Pm = Pa/Pm * MPNa Trade is unambiguously bad for land owners 9/8/16 Heckscher-Olin Model -2 goods (shoes and computers) -2 factors of productions (capital and labor) Week 3 Page 2 -2 factors of productions (capital and labor) -2 countries (home and foreign) -Both factors of production are mobile across sectors -both countries use the same production technology -consumer preferences are the same in both countries Factor intensity (applies to sectors) -an industry uses a factor of production intensively if it uses that factor in a greater proportion than other industries Ls/Ks > Lc/Kc (labor and capital in shoe/computer industry) Shoe industry is labor intensive Ks/Ls < Kc/Lc Computer industry is capital intensive Factor Abundance (applies to countries) -a country is abundant in a factor of production if it possesses that factor of production in a greater proportion than other countries K/L > K*/L* Home country is capital abundant L/K < L*/K* Foreign country is labor abundant Home country Slope of PPF = MPLs/MPLc = MPKs/MPKc w = Pc*MPLc = Ps*MPLs r = Pc*MPKc = Ps*MPKs Pc/Ps = MPLs/MPLc Pc/Ps = MPKs/MPKc w/Pc = MPLc w/Ps = MPLs r/Pc = MPKc r/Ps = MPKs foreign country Pc/Ps = MPKs/MPKc = MPLs/MPLc MPKs/MPLs = MPKc/MPKs Pc/Ps < Pc*/Ps* MPKc/MPLc < MPKc*/MPLc* Week 3 Page 3 foreign country Pc/Ps = MPKs/MPKc = MPLs/MPLc MPKs/MPLs = MPKc/MPKs Pc/Ps < Pc*/Ps* MPKc/MPLc < MPKc*/MPLc* Heckscher-Ohlin Theorem -If all the assumptions of the H-O model apply, then a country will have a comparative advantage in the good that uses its abundant factor of production intensively. Leontief (1953) Compare factor content of US exports to the factor content of US imports Week 3 Page 4
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