ECON 3HH3 Chapter Notes - Chapter 3: Kolmogorov Space, Diminishing Returns, Relative Price
11 Oct 2017
School
Department
Course
Professor
Document Summary
Gains and losses from trade in the specific-factors model. Types of models: short-run: fixed k and l, mid-run: fixed k and mobile l = specific-factor model, long-run: mobile k and l. Effect of relative prices: earnings of fixed factors goes up/down the most because they"re stuck in a sector, and cannot be employed elsewhere, earnings of mobile factors offsets losses from changes in relative prices by seeking employment elsewhere. Input (lx) increases, output (qx) increases at slower rate = slope. If you graph the slope: lx vs mplx, the slope decreases. Diminishing returns to labour also exist in agriculture sector. Mpl decreases since k is fixed, so less capital per worker. Slope = ocx = px/py ie. relative price of x in terms of y. Firms will hire a person up to the point where the cost of that 1 labour = the value of the 1 labour = amount of goods produced in that hour.
