1 / 17

A Comparative Advantage Model

A Comparative Advantage Model . in a Neoclassical World . A Two-Input Economy: A Neoclassical Model. A production function with two inputs: capital and labor Capital and labor are imperfectly substitutable: an increasing cost production function Isoquants Isocosts

paul2
Télécharger la présentation

A Comparative Advantage Model

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. A Comparative Advantage Model in a Neoclassical World

  2. A Two-Input Economy: A Neoclassical Model • A production function with two inputs: capital and labor • Capital and labor are imperfectly substitutable: an increasing cost production function • Isoquants • Isocosts • How does each firm decides on the mix of inputs: the profit maximizing rule

  3. A production function: Q = f (K, L); given K, as L increases Q will increase; given L, as K increases Q will increase Capital, K , and Labor, L, are to some extent substitutable Both K and L are subject to decreasing returns. Special cases: Fixed-proportions production functions Perfectly substitutable inputs

  4. An Isoquant: a graphical representation of a production function K Qx = f (K, L) Qx1 Qx0 L 0

  5. The Isoquant: A Definition An isoquant is a curve drawn in a two-dimensional space representing all the combinations of two inputs (K and L), measured along the two axes, that can produce a given level of output. An isoquant map is a group of isoquants each representing a certain level of output for a given production function Isoquants farther from the origin represent higher levels of output Isoquants cannot cross

  6. An Isoquant Map Qx = f (K, L) K Qx5 =100 Qx4 Qx3 Qx2 Qx1 Qx0=10 L 0

  7. The slope of an isoquant: the marginal rate of technical substitution (MRTS) K Qx = f (K, L) Slope = ΔK/ΔL = MRTS A B Qx0 L 0

  8. Production Costs: Isocost Given Q = f ( K, L ) Cost = C = r K + w L where r = price of K; w= price of L K C/r - w/r L o C/w

  9. Equilibrium Qx = f (K, L) C = rK + wL K MRTS = w/r C/r a b Qx5 =100 Qx4 c Qx3 Qx2 Qx1 Qx0=10 L 0 C/w

  10. K Equilibrium Qx = f (K, L) C = rK + wL Expansion Path MRTS = w/r C/r a b Qx5 =100 Qx4 c Qx3 Qx2 Qx1 Qx0=10 L 0 C/w

  11. A Two-Industry Economy K (K/L)c Kc Computers (K/L)R W/r KR Rugs L o Lc LR

  12. 0 K D L L Y X 0 K

  13. A production possibilities curve for an Economy with two imperfectly substitutable resources producing two goods: Rugs MRS = MRT U1 Uo Computers o

  14. Two Countries UA R UM R C C o o U.S. Mexico

  15. A two-Country Model R R p C’ c f P’ F’ C C o o U.S. Mexico

  16. Can these two countries gain from trade? Y Y Ua Ub 0 0 X X Country B Country A

  17. Two Countries UA R R UB C C o o U.S. Mexico Can these two countries gain from trade?

More Related