Factors of Production in Trade Models

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What is the implication of having diminishing marginal returns in the specific factors model on the Production Possibility Frontier (PPF)?

The PPF will be a curved line with increasing opportunity cost.

In the Ricardian model, why were the Production Possibility Frontiers (PPFs) straight lines?

Due to constant Marginal Product of Labor (MPL).

What must be true for workers to be indifferent between working for two sectors?

Real wage rates are equalized across sectors.

How does an increase in the relative price of cloth affect the returns to labor?

Increase due to higher demand for labor in the cloth sector.

What determines consumption patterns in the autarky equilibrium model?

Individual preferences and budget constraints.

What does the slope of the Production Possibility Frontier (PPF) indicate in the specific factors model?

Opportunity cost of one good in terms of the other.

Why does the cloth wage increase proportionally smaller than the price increase when relative price of cloth increases?

As more labor shifts, marginal productivity per unit decreases.

What is a key factor that leads to income inequality in different sectors according to the text?

'Demand' for specific factors by different sectors.

What happens to the Production Possibility Frontier (PPF) in the specific factors model due to diminishing marginal returns?

'Curves' with increasing opportunity cost.

In the Specific Factors Model, which factors are specific to their industries in the short run?

Capital and land

What does the Ricardian Model lack, leading to a different outcome compared to models with multiple factors?

Multiple factors

Which model is considered the short-run version of the Heckscher-Ohlin model?

Specific Factors Model

What type of competition is assumed in the Specific Factors Model?

Perfect competition

Which factor is NOT easily movable between sectors in the short run in the Specific Factors Model?

Land

What are the two goods considered in the Specific Factors Model?

Cloth and food

Which factor of production is specific to the manufacturing sector in the Specific Factors Model?

Capital

What do diminishing marginal returns imply about the production of goods?

-Decreasing efficiency

What kind of products use both labor and land as factors of production in the Specific Factors Model?

Both food and cloth

What does the diminishing marginal product of labor indicate in production?

Diminished returns as more workers are added

In the specific factors model, what is the effect on workers' purchasing power when there is a relative price change?

Overall effect is ambiguous

What is the impact on landowners' purchasing power when there is a relative price change in the specific factors model?

Overall effect is bad

How does a relative price change affect the purchasing power of capital owners in the specific factors model?

No effect on purchasing power

What happens to workers' well-being in terms of purchasing power when there is a relative price increase?

Depends on their preferences

How does trade affect factor incomes based on the specific factors model?

Predictable changes in incomes for each factor due to trade

Which factor benefits from trade in the specific factors model?

Factor specific to the export good

What is a key difference between the specific factors model and Ricardo's theory of comparative advantage?

'Winners and losers' concept exists in both models

What would be the result if all factors were mobile according to the text?

'Specific factors model' would lose its relevance

How does trade impact owners of the factor specific to the import good in the specific factors model?

'Import good owners' benefit, while 'export good owners' are hurt

What characteristic limits full specialization in a particular good within a country or sector according to the specific factors model?

Complete mobility of factors

Explore the differences between the Ricardian model, specific factors model, and the Heckscher-Ohlin model in international trade. Understand how the inclusion of multiple factors affects the distribution of gains and losses from trade.

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