Labor input
How to Choose the Input?


It will depend on the ralative cost of two factors, that is the factor prices. Suppose the labor’s wage rate is w, and the land’s rent rate is r. the two factors’ price is w/r.
PPF and Diminishing Marginal Returns



生产可能性边界是一条凹函数曲线，表明了各 部门投入要素的边际报酬递减规律； 以劳动为例: 生产可能性边界的斜率为：-MPLF/MPLC.
Prices and Production

Isovalue line(budget constraint line) and PPF:
Summary 2:

各国倾向于出口国内充裕资源密集型的产品。 Countries tend to export goods whose production is intensive in factors with which they are abundantly endowed.
Trade and the Distribution of Income


美国高技术工人相对充裕，低技术工人稀缺， 从而贸易出口多为高技术工人生产的产品。低 技术工人的生活状况本就不好，世界商品价格 的趋同使得美国低技术工人收入的购买力更低， 从而引发贸易保护和贸易争端。 中国的情况如何？请大家谈谈自己的所见所闻， 是否与理论的结论相一致？
Factor-Price Equalization
Relative Price， PC/PF
RD
Relative Quantity， （QC+QC*）/ （QF+QF*）
Budget Constraint

Budget constraint equation: DF-QF=(PC/PF) ×(QC-DC) DF-QF is the economy’s food imports, and QC-DC is the economy’s cloth exports.
Food-Intensive and Cloth-Intensive

Note: Can a good be both factors-intensive? Answers: NO. One good can be only one factor-intensive. In reality, some goods are treated as different types of factor-intensive products. Why?
FF Curve and CC Curve
Wage-rental ratio，w/r
CC
FF
Land-labor ratio，T/L
FF Curve and CC Curve



The FF curve shows the relationship of relative prices and relative quantities used in food’s production. The CC curve shows the relationship of relative prices and relative quantities used in production of cloth. Why are the two curves different with each other?
1. A Two-Factor Economy Model


MODEL: two countries A and B, produces two goods X and Y, with two mobile factors of production M and N. Assumes two goods are cloth (C) and food (F), two two mobile factors of land (T) and labor (L). Definition: A country's land productivity of cloth shows by αTC, labor productivity αLC; the land productivity of food by αTF, labor productivity αLF; a country's aggregate supply of labor is L, the total land supply is T.
Relative Prices and the Pattern of Trade

The internation trade between two countries will bring the relative prices of the goods to converge.
RS* RSW RS
Production Possibility Frontier

The production possibility frontier without factor substitution:
Quantity of food, QF L/αLF Labor constraint T/αTF Land constraint Quantity of cloth, QC
SS
Relative price of goods，PC/PF
Wage-rental ratio，w/r
Goods Prices and Factor Input

Still a one-to-one relationship:(WHY?)
Wage-rental ratio，w/r
CC
SS

FF
Land-labor ratio，T/L Relative price of goods，PC/PF
Factor Prices and Goods Prices

The factors’ relative prices and the goods’ relative prices are of one-to-one relationship: (Why is SS curve concave?)
Summary 1:


布的相对价格增长会导致工人相对收入的增加。 布的相对价格的增长会导致两种商品衡量的实 际工资的上涨，同时降低实际租金，即增加了 工人的购买力而降低了土地所有者的购买力。 为什么？ 要素所得等于该要素边际产出的支付。
Resources and Output

Knowing the relationship of commodity prices, factor supply and goods’ output, we can build up a two-factor economic model: 生产粮食的劳动量
Resource Changes and Production Possibility



土地增加会引起生产可能性边界向外扩展了， 使得资源在不同生产部门重新分配。 Summary 2: 罗勃津斯基效应(Rybczynski effect)：资源 供给的变动对生产可能性具有偏向性效应，这 也是理解资源差异如何导致国际贸易的关键。
Food-Intensive and Cloth-Intensive


在要素价格比一定的情况下，不同的产品生产 所需要的要素投入组合是不一样的，此时更多 地需要某种生产要素的产品称为这种要素生产 密集型产品(XX-intensive goods)。 So with the figure showed above, the food is land-intensive and the cloth is labor-intensive.
International Economics
theory and policy
Paul R. Krugman Maurice Obstfeld
Chaper 3 Resources, Comparative Advantage, and Income Distribution


A Model of a Two-Factor Economy:Prices and Production Effects of International Trade Between Two-Factor Economies The Political Economy of Trade: A Preliminary View Empirical Evidence on the Heckscher-Ohlin Model Summary
L/αLC
T/αTC
Production Possibility Frontier

The production possibility frontier with factor substitution: WHY?
Quantity of food, QF PPF
Quantity of cloth, QC
Quantity of food, QF Isovalue lines Q
PPF Quantity of cloth, QC
Factor Input of Unit Product

Input possibilities in food production:
Land input Input combinations per unit of food