T4: Trade and Income Distribution in the SR Flashcards
How do we determine equilibrium wages?
MPL in agric = MPL in manuf
What are the unique assumptions of the Specific Factors model?
Land is specific to agricultural sector
Capital is unique to manufacturing
Labour can float freely between them and is used by both sectors
What happens if there is a change in price?
If there is a change in price, we shift the curve of the relevant sector and due to labour mobility, the wage rates will equalise
How do we know if workers are better off
just because wages have risen, doesn’t mean workers are better off
We have to assess the real price of goods is the change in wage greater than the change in the price of goods
The key point is that with the specific-factors model, an increase in the relative price of manufactured goods results in an ambiguous effect on the well-being of labour since the effect on the real wage is undetermined
How do we determine the earnings of fixed inputs?
Sales Revenue = Payments to Labour + Payments to fixed input
Who generally gains in the specific-factors model?
An increase in the relative price of an industry’s output will increase the real rental earned by the factor specific to that industry but will decrease the real rental of factors specific to other industryes
The specific factor whose relative price has increased, gains
