SPECIFIC FACTORS MODEL

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SPECIFIC FACTORS MODEL effects of immobile
factors (especially relevant in
short-run) conflict between sectors (e.g.
agriculture versus industry)     Readings
YY Study Sections 4.5 and 4.6.4 Read
cases 4 and 5 of Chapter 4   Overview assumptio
ns and notation marginal product and factor
demand marginal product and opportunity
cost equilibrium in the market for the mobile
factor endowments and autarky prices autarky
prices and trade trade and distribution of
income
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Assumptions two sectors food (F) and clothing
(C) goods produced with one mobile factor -
labor (L) one factor used only in C - capital
(K) one factor used only in F land
(S) fixed endowments of L, K, and
S endowments differ between countries owner
of K owns the C sector and owner of S owns the
F sector perfect competition ? price equals
cost     Notation KA , LA, F, C, wA ,
, as before SA endowment of land in
A for country B, replace A's with B's note
country superscripts or industry subscripts
omitted when analysis applies to all
countries or to all industries
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Factor Demand   marginal product   value of
marginal product MP(price of
output) (VMP) law of diminishing returns
profit maximization ? price of input VMP
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Opportunity Cost PFMPF VMPF w   PCMPC
VMPC w   opportunity cost
of F in units of C