INTERNATIONAL ECONOMICS 03/01/20 COPY RIGHT 1 Specific Factors and Income Distribution 1.The...
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(三) Specific Factors and Income Distribution
1.The Specific Factors Model
2.International Trade in the Specific Factors Model
3.Income Distribution and the Gains from Trade
4.The Political Economy of Trade: A Preliminary View
5.Summary
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1.The Specific Factors Model
(1).Assumptions of the Model
(2).Box: What is a Specific Factor?
(3).Production Possibilities
(4).Prices, Wages and Labor Allocation
(5).Relative Prices and the Distribution of Income
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(1). Assumptions of the Model
• Imagine an economy
①.produce two goods:
manufactures and food
②.three factors of production:
labor (L), capital (K), and land (T for terrain)
③.perfectly competition
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• How much does the economy produce?
• Production function
QM=QM(K,LM), (3-1)
QF=QF(T,LF), (3-2)
LM+LF=L. (3-3) where QM 、 QF: output of manufactures and food
K: capital stock T: supply of land
LM 、 LF: the labor force employed in manufactures and food
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(2).Box: What is a Specific Factor?
• A Specific Factor is a factor that is specific to
particular uses.
e.g. land, capital
• A mobile factor is a factor that can move
between sectors.
e.g. labor
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(3) Production Possibilities
• First, representing the production functions(3-
1) and(3-2),
• Then, putting them together to derive the
production possibility frontier.
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Figure 3-1 The Production Function for Manufactures
Output, Qm
Laborinput, LM
QM=QM(K,LM)
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Figure 3-2 The Marginal Product of Labor
Marginal productof labor, MPLM
Laborinput, LM
MPLM
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Figure 3-3 The Production Possibility Frontier in the Specific Factor Model
QF
LM
QM
LF
PP
AA
L
L QM=QM(K,LM)
QF=QF(T,LF
)
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3
1’2’
3’
LM2
QM2
QF2
LF2
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Notice:
output of input of output of
food labor manufactures
MPLF 1 MPLM
MPLF/MPLM 1/MPLM 1
So, Slope of production possibilities curve=- MPLF/MPLM
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(4).Prices, Wages and Labor Allocation
LM LF
1w1
Wage rate
PF×MPLF
PM×MPLM
LM1 LF
1
Figure 3-4 the allocation of labor
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MPLM×PM=w (3-4)
MPLF×PF=w (3-5)
LM+LF=L (3-6)
Equations(3-4)and(3-5)imply that
MPLM×PM= MPLF×PF=w
or, - MPLF/MPLM =-PM/PF (3-7)
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Figure 3-5 Production in the Specific Factors Model
QM
QF
QF1
QM1
1
Slope=-(PM/PF)1
PP
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Figure 3-6 An Equal Proportional Increase in the Prices of Manufactures and Food
LM LF
2
w1
Wage rate PF
2×MPL
F
PM1×MPL
M
PF1×MPLF
PM2×MPL
F
w2
1
PF increases 10%
PM increases 10%
w
10% wage increase
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Figure 3-7 A Rise in the Price of Manufactures
w1Wage rate rises by
less than 7%
LM LF
1
Wage rate
PF1×MPLF
PM1xMPL
M
PM2xMPL
M
w2
Amount of labor shifted from food to manufactures
2
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Figure 3-8 The Response of Output to a Change in the Relative Price of Manufactures
QF
QM
Slope=-(PM/PF)1
Slope=-(PM/PF)2
1
2
QF1
QF2
QM1
QM2
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Figure 3-9 Determination of Relative Prices
RS
RD
1
PM/PF
(PM/PF)1
(QM/QF)1
QM/QF 返回
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Question:
Explain how the opening of trade can lead to an increase in money wages in a capital-abundant country if capital is immobile between sectors. Does this mean that labor is necessarily better off with trade?
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(5).Relative Prices and the Distribution of Income
If relative price rise by 10%, wage rate rise only by 5%
then
workers: uncertainty
owners of capital: definitely better off
owners of land: definitely worse off
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2.International Trade in the Specific Factors Model
• (1).Resources and Relative Supply
• (2).Trade and Relative Prices
• (3).The Pattern of Trade
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(1).Resources and Relative Supply
LM LF
1
Wage rate, w
PF1×MPLF
PM1xMPL
M
PM2xMPL
M
w
Amount of labor shifted from food to manufactures
2
w
K
Figure 3-10 Changing the Capital Stock
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(2).Trade and Relative Prices
PM/PF
(PM/PF)A
(PM/PF)WORLD(PM/PF)J
QM/QF
RDWORL
D
RSJ
RSWORL
D
RSA
Figure 3-11 Trade and Relative Prices
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(3).The Pattern of Trade PM×DM+PF×DF=PM×QM+PF×QF (3-
8)Rearranging: DF-QF=(PM/PF)×(QM-DM) (3-
9) DF
QF
QF1
Q
M1
DM
QM
1
PP
Budget constraint
Figure 3-12 The Budget
Constraint for a Trading Economy
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Figure 3-13 Trading Equilibrium
QF QF
QFJ
QMQM
DFJ
DMJQMJ
QFADFA
QMA
DMA
(a) Japan (b) America
Japanese budget constraint
American budget constraint
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3.Income Distribution and the Gains from Trade
Trade benefits the factor that is specific to the export sector of each country but hurts the factor specific to the import-competing sectors, with ambiguous effects on mobile factors.
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Figure 3-14 Trade Expands the Economy’s Consumption Possibilities
DF
QF
QF1
Q
M1
DM
QM
1
PP
Budget constraint2
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4.The Political Economy of Trade: A Preliminary View
(1).Optimal Trade Policy
Box: Specific Factors and the
Beginnings of Trade Theory
(2).Income Distribution and Trade
Politics
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(1).Optimal Trade Policy
Three main reasons:• It’s not specific• It’s always better to allow trade and
compensate those who are hurt by it• Those who stand to lose are typically
better organized
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(2).Income Distribution and Trade Politics
Typically, those who gain from trade in any particular product are a much less concentrated, informed, and organized group than those who lose.
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5.Summary
• This chapter builds upon the insig-hts from chapter 2 by developing tra-de models which allow countries to p-roduce goods when production requires more than one factor of production.
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• One important reason for this add-ition to the model is that this more general framework highlights the eff-ects of trade on income distribution.
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• The first model presented includes factors of production which are spec-ific to the production of each of two goods.
• Then, a more general model is intr-oduced, with this latter model allow-ing for both mobile and specific fac-tors of production.
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• This extension provides an even ri-cher analysis of the income distribu-tion effects of trade.
• These models set the stage for an initial discussion of the political economy of trade and for justifying economist’s support of the principl-es of free trade among nations.
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