INTERNATIONAL ECONOMICS 03/01/20 COPY RIGHT 1 Specific Factors and Income Distribution 1.The...

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第页03/01/20 绍兴文理学院经管学院 COPY RIGHT

（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

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Figure 3-3 The Production Possibility Frontier in the Specific Factor Model

L QM=QM(K,LM)

QF=QF(T,LF

1’2’

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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

Wage rate

PF×MPLF

PM×MPLM

LM1 LF

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

Slope=-(PM/PF)1

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Figure 3-6 An Equal Proportional Increase in the Prices of Manufactures and Food

Wage rate PF

2×MPL

PM1×MPL

PF1×MPLF

PM2×MPL

PF increases 10%

PM increases 10%

10% wage increase

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Figure 3-7 A Rise in the Price of Manufactures

w1Wage rate rises by

less than 7%

Wage rate

PF1×MPLF

PM1xMPL

PM2xMPL

Amount of labor shifted from food to manufactures

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Figure 3-8 The Response of Output to a Change in the Relative Price of Manufactures

Slope=-(PM/PF)1

Slope=-(PM/PF)2

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Figure 3-9 Determination of Relative Prices

(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%

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

Wage rate, w

PF1×MPLF

PM1xMPL

PM2xMPL

Amount of labor shifted from food to manufactures

Figure 3-10 Changing the Capital Stock

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(2).Trade and Relative Prices

(PM/PF)A

(PM/PF)WORLD(PM/PF)J

RDWORL

RSWORL

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-

Budget constraint

Figure 3-12 The Budget

Constraint for a Trading Economy

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Figure 3-13 Trading Equilibrium

DMJQMJ

QFADFA

(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

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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INTERNATIONAL ECONOMICS 03/01/20 COPY RIGHT 1 Specific Factors and Income Distribution 1.The...

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