The specific factor model by James Markusen Introduction Before entering the matrial of The specification factor model,we

must know the basic of the Hecksher Ohlin model.the Hecksher Ohlin model is where two factors of production capital and labor were used to produce two outputs,and where both factors were percfectly mobile between the two industries.and then we must understand about the Hecksher Ohlin assumption of free factor mobility between industries describes a state at which an economy can arrive only in the long run.for the short time periods,factor specificity is common. So,the Specific factor model similar to the hackscher Ohlinmodel expect that one factor,that is capital.why?because assumed to be useful for the production of only comodity.and then we will learn to much about the specific factor model.

The Specific factors Model The specific factor model is similar to the model used Heckscher ohlin anlysis.we assumed that two commodities are produced with production functions that exhibit constantretruns to scale.we assume that two factors of productionare required for both productions functions.as usual,tastes are assumed to be homogeneous and indentical for all consumers,allowing the representative of prefrences by set of community indiffrence curves. The essential diffrences betwen the Hecksher Ohlin and the specific factor model is that in latter theory,only labor is homogeneous and common to the two production functions.capital is fixed by industry in the short run. The production functions :

Rx and Sy respresent types of capital thet are specific to sectors X and Y,respectively. Corresponding to the factor supply constraint of Eqs.we have following equations:

The Equations simply show that the entire available stock of factor R is used to produce commodity X and the entire endowment of factor S is used to produce commodity Y.

Its useful at this point to review certain properties of production functions that have constant to scale.this curve explain response of output in an industry to increases in variable factor,holding constant the input of a fixed factor.

In the top panel,this curve explain the total product of labor in sector X rise as more labor is added to the fixed stocks of Rx,and than make dimishing rate.in bottom panel,the marginal product of labor in industry X ,this make slope of total product of the total product curve.because of dimishing returns,the marginal product,declines as employment in variable X is increses or rise.a similar construction applies to good Y,given the fixed of stock Sy. Analogous conclusions hold for the determinant of the marginal product of capital are declining functions of the capital labor ratios in each industry.finally ,under constant retruns to scale ,the marginalproducts of each factor depend only on these capital labor ratios and not on the level of production. We retain the assumption that factor markets are perfectly competitive ,impliying that firms pay each factor the value of its marginal product.in the industry have:

Have same equations characteristic factor market equilibrium with respect to industry Y.from that conditions can specify the real retruns to labor and capital in terms of commodity X are equivalentto their marginal products respectively. Completing the model requiresin sector X and Y in a short run general equilibrium framework.can done by nothing thet inter industry labor mobolity must establish a common wage in both industries,feature alllows us to determine the allocation of labor between X and Y in each equilibrium,as depcited in curve.

Employment in sector X is indicated from left to right ,relative to origin Ox.supose that Px is given and that the capital stock industry X is held fixed.as more labor is employed in this sector,the MPl declines ,causing the value of labors marginal product,or VMPlx to be downwards sloping curve.because the equilibrium requires the equality of VMPlx and w ,its possible to interpret.this schedule as a demand curve for labor in industry X.note that a rise in either px or Rx would shift the VMPlx curve upwards. The demand for labor in sector Y is representive by VMPly schedule,is drwan from right to left relative to origin Oy.movements to the left representlarge employment in Y and correspondend to declinesin the marginal product and in value of the marginal product of labor for a given endowment of Sy and fixed Py. Suppose point A reprenstive autorky equilibrium in this economy.accordingly,the distance OxL measure employment in industry X,the distance OyL measures employment in industry Y,and labor is fully utilized.its make income distribution and make equlibrium.there is common wage w paid in both industries.total labor income paid to workers in sector X is the area w OxLA,while taht in sector Y is w OyLA.the remaining income genertedin each sector represntive nominal total retruns to each capital stock.in autarky,factor R earns the area VwA and factors s Earns the area ZwA.

Commodity prices and Factor prices Commodity prices and factor prices is a relative price increase of a good benefits the specific factor used in that industry,reduces the real income of the other specific factor,and ambiguous effect on the mobile factor.this proposition is sharp contrast to the stolper Samuelson theorm.which is based on the long run supposition that both factors are costlessly mobile between industries,predicts that the effect of relative change commodityprices on real factor prices depends on factor intensities of the commodity. Endowment changes,factor prices,and outputs Have two central features of the endowment model.were the factor price equalization theorm and the Rybcznski theorm. Factor price equalization The factor price equalization theorm stated that in free trade with equalizedcoomodity prices,if two countries produce both goods in common,real factors prices will become identical as well.the theory relies on the assumption that there are least as many goods as factors so that equalized goods prices would be sufficient to determine equalized factors prices.considers the effects of endowment changes on real income;look the curve.

Where we take as the intial situation the free trade equilibrium at the point C.to simplify matters we suppose that the curve refres to small open economy that countinually faces fixed international prices,there by holding both domestic prices fixed throughout. Consider first an increase in the endowment of S,the specific capital capital stock in sector Y.clearly,all of the new capital stock must be employed in industry Y,and this infusin of capital increases the marginal product of labor industry.the curve ,the outcome is represented by the

upwards shift in the VMPly schedule.the higher wage induces labor to flow from sector X to sector Y until the wage is again equalized at point T.ouput of good Y goes up,drawing labor from good X,the output of which declines. The next consider the effect of an increase of an increase in the endowment of labor.this changes is representive in the curve by an enlargement of the labor force,shifting the origin for sector Y to Oy.in turn,the VMPly schedules is displaced to the right by the same amount.thus,the curve VMPly,but with reference to the new origin. Factor endowments and factor prices is at constant commodity prices,any increase that in the real returns to the mobile factor and lower the real retruns to both specific factors.an increases in the endowments of the mobile factors will be reduce its own real income and increase the real income of both specific factors. And trade factors prices is in the specific factors model,the equalization of commodity prices by international trade does not equalize factors prices. So it is important implications of this finding is that free trade in goods does not fully exchaust the availablegains from trade,in the sense that productive factor have an incentive to migrate in such as equilibrium. Endowment changes and outputs Endowmnet changes and output is an increase in one specific factors increases the output of the commodity thats uses that factors and recudes the output of the other industry.increases in the supply of the mobile factor will expand both outputs.so,the impacts of indowments changes in the specific factors model suggest that different groups of factors will have different incentives to lobby for or against international factors migration. The pattern of trade The pattern of trade is the specific factors model,each countrywill export the good with the absoluty abundant stock of specific capital,assuming identical endowments of labor,the mobile factors.with diffrents in labor endowments,trade patterns will depand on the nature of the production functions and on the allocation of capital. Concluding Remarks The specific model provides an interesting to the HO model.and the theorm with endowments model do not carry over to the specific factors framework.the conclusions; a.in specific factor model technology make more value. b.in the Ho model,factor prices is important because uniquely determined by commodity prices and real factor rewards change in a predictable way when commodity price changes. c.the trade does not equalized foctor prices accros countries in the specific factors model.