ECON 155 Lecture Notes - Lecture 9: Gender Pay Gap, Diminishing Returns, Demand Curve
Document Summary
No difference in productvity, no economies of scale and transportation costs => More advanced neo classical model of regions with economies of scale. Diminishing returns to scale means marginal products of labor decrease at dimi. As you add more labor each increasing labor is slightly less productive. Regions start with identical endowment and demand for labor. One region discovers endowments that both regions need so transportation costs are. Mrp/vmp are higher because effective price after transportation costs are hi. Wages rise to 80 in north but in south remains at 30. Wage gap prompts migration osts => no reason for trade ishing returns, and free at diminshing rate sts are lowered are higher. Suppose nation builds interstate highways that reduces transportation costs. North alreay has low transportation costs it wont gain much mrp (0), south will h wages and new equilibrium.
