international economics the gain and loss from th.pdf
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3GAINSANDLOSSES1Specific-FactorsFROMTRADEINModelTHESPECIFIC-2EarningsofLaborFACTORSMODEL3EarningsofCapitalandLand4ConclusionsChapterOutline•TheIntroductionofSpecific-FactorsModelTheHomeCountry.ProductionPossibilitiesFrontier.OpportunityCostandPrices.TheForeignCountryOverallGainsfromTrade•EarningsoflaborDeterminationofWages.EquilibriumWageChangeinRelativePriceofManufactures.EffectontheWage.EffectonRealWages.OverallImpactonLabor.Unemployment©2008WorthPublishers▪InternationalEconomics▪Feenstra/Taylor2of63ChapterOutline•EarningsofCapitalandLandDeterminingthePaymentstoCapitalandLand.ChangeintheRealRentalonCapital.ChangeintheRealRentalonLandNumericalExample.ChangeintheRentalonCapital.ChangeintheRentalonLand.GeneralEquationforChangeinFactorPricesWhatitallMeans•Conclusions©2008WorthPublishers▪InternationalEconomics▪Feenstra/Taylor3of63Introduction•Openingacountrytotradegenerateswinnersandlosers.•Determiningwhogainsandwholosesanswersmanyquestionsabouttradepolitics.•Specific-Factorsmodelhelpsexplainwhogainsandwholoses.•TheShortRunSpecific-FactormodeloffersnewinsightsbeyondtheRicardianmodel.©2008WorthPublishers▪InternationalEconomics▪Feenstra/Taylor4of63Specific-FactorsModel•Howdoestradeaffecttheearningsofcapital,labor,andland?•FromtheRicardianmodel,freetradeleadsto:RisingrelativepricesintheexportsectorFallingrelativepricesintheimportsector•Sowhatwereallywanttoknowishowchangesinrelativepricesaffecttheearningsoffactors©2008WorthPublishers▪InternationalEconomics▪Feenstra/Taylor5of63Specific-FactorsModel•Willcontinuetousetwocountries:HomeandForeign.•HomeCountryManufacturinguseslaborandcapital.Agricultureuseslaborandland.Specificfactors:CapitalforManufacturing,landforAgricultureDiminishingreturnstolabor—decreasingMPLMandMPLA(seeFigure3.2).©2008WorthPublishers▪InternationalEconomics▪Feenstra/Taylor6of63Specific-FactorsModelDiminishingMarginalProductofLaborFigure3.2©2008W