ECON 3HH3 Chapter Notes - Chapter 3: Free Trade, Business Cycle, Real Wages
Document Summary
Chapter 3 gains and losses from trade in the specific-factors model. Specific-factors model: land is specific to the agriculture sector and capital is specific to the manufacturing sector; labor is used in both sectors, so it is not specific to either one. True in the short run that land is specific to agriculture and that capital is specific to manufacturing. In each industry increases in the amount of labor used are subject to diminishing returns the marginal product of labor decline as the amount of labor used in the industry increases. Combining the output for the 2 industries manufacturing and agriculture you obtain a. Ppf for the economy: because of the diminishing returns to labor in both sectors the ppf is bowed out or (cid:272)o(cid:374)(cid:272)a(cid:448)e (cid:449)ith respe(cid:272)t to the graph"s origi(cid:374) By using the marginal products of labor in each sector you can determine the slope of the ppf.