Download A ONE-FACTOR ECONOMY

A ONE-FACTOR ECONOMY
a LC
：生產一磅之乳酪所需之工時
1
：每一個工時可生產之酒的數量
a LW
a LC / a LW  a LC  1 / a LW ：生產一磅乳酪之工時 ×每一個工時可生產之酒
＝生產乳酪之時間用來生產酒的數量
＝生產乳酪之機會成本
Relative Prices and Supply
To determine what the economy will produce, we need to look at prices.
Perfect competition (profit = 0)
Hourly wage rate in wine sector is Pw a , and in cheese sector is Pc a .
LW
LC
Pc / Pw  a LC / a LW  Produce cheese
Pc / Pw  a LC / a LW  Produce wine
Pc / Pw  a LC / a LW  Produce both cheese and wine
The economy will specialize in the production of cheese exceeds its
opportunity cost; it will specialize in the production of wine if the relative
price of cheese is less than its opportunity cost.
In the absence of international trade, the relative prices of goods are equal
to their relative unit labor requirements.
1
TRADE IN A ONE-FACTOR WORLD
Two countries (Home and foreign) one factor model. * , denotes foreign
country.
Assumption: Home has a comparative advantage in cheese.
*
*
a LC / a LW  a LC
/ a LW
, or
*
*
a LC / a LC
 a LW / a LW
Comparative advantage / Absolute advantage:
Determining the Relative Price after Trade
Partial equilibrium analysis: look only at one market
General equilibrium analysis: look at both markets
Relative supply curve (RS):a “step” with flat sections linked by a vertical
section.
PC / PW  a LC / a LW  produces wine only, Qc  0  Qc*
PC / PW  a LC / a LW  home produces cheese and wine, foreign wine only.
*
*
a LC / a LW  PC / PW  a LC
/ a LW
 home produces cheese, foreign wine only.
*
*
PC / PW  a LC
/ a LW
 home produces cheese only, foreign cheese and wine.
*
*
PC / PW  a LC
/ a LW
 QW  QW*  0 , produces cheese only.
Relative demand curve (RD):
Reflect substitution effect; negative slope; relative price of cheese up,
then relative quantity demanded of cheese down.
***Figure 2-3: world relative supply and demand***
2
The Gains from Trade
Trade: indirect method of production
Two alternatives to produce wine per hour for Home, directly and
indirectly.
if (1 / a LC )( PC / PW )  1 / a LW , or PC / PW  a LC / a LW
(1 / a LC )( PC / PW ) ：
每一個小時可生產乳酪之數量）×（乳酪之價格）/（酒之價格）
＝每一個小時生產乳酪所可換回之酒的數量（間接生產酒）
1 / a LW ：
每一個小時可生產酒之數量（直接生產酒）
3