Econ 503 Week 4 notes
Econ 503 Week 4 notes ECON 503 001
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ECON 503 001
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This 1 page Class Notes was uploaded by Tulsi on Friday September 16, 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: 09/16/16
Week 4 Tuesday, September 13, 20161:22 PM 9/13/16 Heckscher-Ohlin Model -AKA 2 by 2 by 2 model -2 countries, 2 goods, 2 factors of production Heckscher-Ohlin Theorem -A country will have a comparative advantage in the good that uses its abundant factor of production intensively. -Home is capital abundant -Foreign is labor abundant -computers are capital intensive -shoes are labor intensive Factor Returns in H-O Model When we open to trade: w/r goes down Lc/Kc and Ls/Ks increase w/Pc = MPLc -both decrease because Lc/Kc rises w/Ps = MPLs -both decrease bc Ls/Ks rises Workers will be unambiguously harmed by trade Economy wide demand for labor went down In each industry, relative amount of labor used relative to capital went up r/Pc = MPKc -both rise b/c Lc/Kc rises r/Ps = MPKs -both rise b/c Ls/Ks rises Capital owners unambiguously benefit from trade Stulper-Samuelson (1941) Theorem If all of the assumptions of the H-O model hold, then when a country opens to trade, owners of its abundant factor of production will gain and owners of its scarce factor of production will lose. Week 4 Page 1
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