Chapter 3Specific Factors and.pptVIP

* Chapter 3 Specific Factors and Income Distribution (continue) 一、International Trade in the Specific Factors Model For trade take place, the two countries must differ in the relative price of manufactures that would prevail in the absence of trade. International trade alters(改变) the relative prices of goods and thus the amount of labor used in each sector, the real wage to labor and the returns to capital and land. Assumptions of the model The trade take place if the two countries differ in the relative price of manufactures. The price is determined by demand and supply. Assume that both countries (Japan and US) have the same relative demand curve. The only source of international trade is the differences in relative supply (Technology and Factors of production) . Resources and Relative Supply What are the effects of an increase in the supply of capital stock on the outputs of manufactures and food? A country with a lot of capital and not much land will tend to produce a high ratio of manufactures to food at any given prices. PM X MPLM2 PF 1 X MPLF Wage rate, W Wage rate, W PM X MPLM1 W 1 1 2 W 2 Increase in capital stock, K Amount of labor shifted from food to manufactures Labor used in manufactures, LM Labor used in food, LF Changing in the capital stock An increase in the supply of capital would shift the relative supply curve to the right, the relative output of manufacture would rise (Why ? ) Other things equal, an increase in the quantity of capital would raise the marginal productivity of labor in the manufacture sector. An increase in the supply of land would shift the relative supply curve to the left. What about the effect of an increase in the labor force? The effect on relative output is ambiguous, although both outputs increase, it depends on the endowment of each country. Suppose that Japan has more capital per w