ECON 101 Lecture 4: Lecture 04 - Comparative Advantage due to Endowment Differences
Document Summary
Lecture 04 - comparative advantage due to endowment differences. Marginal product of labor and its allocation: when deciding how many people to hire, we need to weigh costs/benefits. Benefit: how much extra he makes (marginal product) times the price per good (price), so mp * price = value marginal product: in short, employ people until wage = vmp. The specific factors trade model: home: relatively more capital abundant > , home will export capital-intensive manufactures, both home and foreign will gain from free trade overall. If home has more t, the vmpf curve will increase, so the country will make more food, so home will make (and export) food goods. We have to touch exactly there because any further out is impossible (can"t produce at that point) and any further in is possible, but inefficient. Distributional effects of trade: each country realizes overall gains from trade (improved world-wide factor allocation, the gains are unevenly distributed.
