CHAPTER 2
LABOR PRODUCTIVITY
COMPARATIVE ADVANTAGE（ 比较优势）
THE RICARDIAN MODEL（ 李嘉图模型）
2
Chapter Organization
Introduction
The Concept of Comparative Advantage
A One-Factor Economy
Trade in a One-Factor World
Comparative Advantage with Many Goods
Adding Transport Costs and Nontraded Goods
Summary
3
Countries engage in international trade for
two basic reasons:
– They are different from each other in terms of
climate,land,capital,labor,and technology.
– They try to achieve scale economies in
production.
The Ricardian model is based on
technological differences across countries.
– These technological differences are reflected in
differences in the productivity of labor.
Introduction
4
On Valentine’s Day the U.S,demand for roses is
about 10 million roses.
Growing roses in the U.S,in the winter is difficult.
– Heated greenhouses should be used.
– The costs for energy,capital,and labor are substantial.
Resources for the production of roses could be used
to produce other goods,say computers.
The Concept of
Comparative Advantage
5
Opportunity Cost
– The opportunity cost of roses in terms of computers is the
number of computers that could be produced with the same
resources as a given number of roses.
Comparative Advantage
– A country has a comparative advantage in producing a goods
if the opportunity cost of producing that goods in terms of
other goods is lower in that country than it is in other
countries.
The Concept of
Comparative Advantage
6
Suppose that in the U.S,10 million roses can be
produced with the same resources as 100,000
computers.
Suppose also that in South America 10 million
roses can be produced with the same resources as
30,000 computers.
This example assumes that South American
workers are less productive than U.S,workers.
The Concept of
Comparative Advantage
7
If each country specializes in the production of the
goods with lower opportunity costs,trade can be
beneficial for both countries.
– Roses have lower opportunity costs in South America.
– Computers have lower opportunity costs in the U.S.
The benefits from trade can be seen by
considering the changes in production of roses and
computers in both countries.
The Concept of
Comparative Advantage
8
Table 2-1,Hypothetical Changes in Production
The Concept of
Comparative Advantage
9
The example in Table 2-1 illustrates the principle of
comparative advantage,
– If each country exports the goods in which it has comparative
advantage (lower opportunity costs),then all countries can in
principle gain from trade.
What determines comparative advantage?
– Answering this question would help us understand how
country differences determine the pattern of trade (which
goods a country exports).
The Concept of
Comparative Advantage
10
A One-Factor Economy
Assume that we are dealing with an economy
(which we call Home),In this economy:
– Labor is the only factor of production.
– Only two goods (say wine and cheese) are
produced.
– The supply of labor is fixed in each country.
– The productivity of labor in each goods is fixed.
– Perfect competition prevails in all markets.
11
The technology of Home’s economy can be summarized
by labor productivity in each industry,expressed in
terms of unit labor requirements:
– The unit labor requirement is the number of hours of labor
required to produce one unit of output.
Denote with aLWthe unit labor requirement for wine (e.g,if aLW = 2,
then one needs 2 hours of labor to produce one gallon of wine).
Denote with aLC the unit labor requirement for cheese (e.g,if aLC = 1,
then one needs 1 hour of labor to produce a pound of cheese).
The economy’s total resources are defined as L,the total
labor supply (e.g,if L = 120,then this economy is
endowed with 120 hours of labor or 120 workers).
A One-Factor Economy
12
Production Possibilities
– The production possibility frontier (PPF) of an economy
shows the maximum amount of a goods (say wine) that can
be produced for any given amount of another (say cheese),
and vice versa,Or illustrates the different mixes of goods the
economy can produce.
– The PPF of our economy is given by the following equation:
aLCQC + aLWQW = L (2-1)
– From our previous example,we get:
QC + 2QW = 120
A One-Factor Economy
13
L/aLW
L/aLC
Figure 2-1,Home’s Production Possibility Frontier
A One-Factor Economy
Absolute value of slope equals
opportunity cost of cheese in
terms of wine
F
P
Home wine
production,QW,
in gallons
Home cheese
production,QC,
in pounds
o
14
Relative Prices and Supply
– The particular amounts of each goods produced are
determined by prices.
– The relative price of goods X (cheese) in terms of goods
Y (wine) is the amount of goods Y (wine) that can be
exchanged for one unit of goods X (cheese).
– Examples of relative prices:
If a price of a can of Coke is $0.5,then the relative price of
Coke is the amount of $ that can be exchanged for one unit of
Coke,which is 0.5.
The relative price of a $ in terms of Coke is 2 cans of Coke per
dollar.
A One-Factor Economy
15
Denote with PC the dollar price of cheese and
with PW the dollar price of wine,Denote with wW
the dollar wage in the wine industry and with wC
the dollar wage in the cheese industry.
There are no profits in our one-factor model,the
hourly wage rate in the cheese sector will equal
the value of what a worker can produce in an
hour,PC/aLC.The hourly wage rate in the wine
sector will be PW/aLW.
A One-Factor Economy
16
The above relations imply that if the relative price
of cheese (PC / PW ) exceeds its opportunity cost
(aLC / aLW),then the economy will specialize in
the production of cheese.Or PC/aLC>PW/aLW.
In the absence of trade,both goods are produced,
and therefore PC / PW = aLC /aLW.
A One-Factor Economy
17
Trade in a One-Factor World
Assumptions of the model:
– There are two countries in the world (Home and Foreign).
– Each of the two countries produces two goods (say wine
and cheese).
– Labor is the only factor of production.
– The supply of labor is fixed in each country.
– The productivity of labor in each goods is fixed.
– Labor is not mobile across the two countries.
– Perfect competition prevails in all markets.
– All variables with an asterisk refer to the Foreign country.
18
Absolute Advantage
– A country has an absolute advantage in a production of a
goods if it has a lower unit labor requirement than the
foreign country in this goods.
– Assume that aLC < a*LC and aLW < a*LW
This assumption implies that Home has an absolute advantage in
the production of both goods,Another way to see this is to notice
that Home is more productive in the production of both goods than
Foreign.
Even if Home has an absolute advantage in both goods,beneficial
trade is possible.
The pattern of trade will be determined by the
concept of comparative advantage.
Trade in a One-Factor World
19
Comparative Advantage
– Assume that aLC /aLW < a*LC /a*LW (2-2)
This assumption implies that the opportunity cost of cheese in
terms of wine is lower in Home than it is in Foreign.
In other words,in the absence of trade,the relative price of cheese
at Home is lower than the relative price of cheese at Foreign.
Home has a comparative advantage in cheese and will
export it to Foreign in exchange for wine.
Trade in a One-Factor World
20
F*
P*
L*/a*LW
L*/a*LC
Foreign wine
production,Q*W,
in gallons
Foreign cheese
production,Q*C,
in pounds
+1
Figure 2-2,Foreign’s Production Possibility Frontier
Trade in a One-Factor World
21
Determining the Relative Price After Trade
– What determines the relative price (e.g.,PC / PW)
after trade?
To answer this question we have to define the relative
supply and relative demand for cheese in the world as a
whole.
The relative supply of cheese equals the total quantity
of cheese supplied by both countries at each given
relative price divided by the total quantity of wine
supplied,(QC + Q*C )/(QW + Q*W).
The relative demand of cheese in the world is a
similar concept.
Trade in a One-Factor World
22
2
RD'
RD
1
Q'
aLC/aLW
a*LC/a*LW RS
Figure 2-3,World Relative Supply and Demand
Trade in a One-Factor World
Relative price
of cheese,PC/PW
Relative quantity
of cheese,QC + Q*C
QW + Q*W
L/aLC
L*/a*LW
23
Trade in a One-Factor World
First,the RS curve shows that there is no supply of
cheese if the world price drops below aLC/aLW.
-Assume aLC/aLW<a*LC/a*LW,,Home will
specialize in the production of cheese.
-Home will specialize in the production of wine
whenever PC/PW<aLC/aLW,or PC/aLC<PW/aLW.
-Similarly,Foreign will specialize in wine
production whenever PC/PW<a*LC/a*LW.
Second,when the relative price of cheese,
PC/PW=aLC/aLW,Home workers are indifferent
between producing cheese and wine,We have a
flat section of the supply curve,
24
Trade in a One-Factor World
Third,for PC/PW>a*LC/a*LW,both Home and
Foreign will specialize in cheese production,
There will be no wine production,so that the
relative supply of cheese will become infinite.
Fourth,At PC/PW=a*LC/a*LW,Foreign workers are
indifferent between producing cheese and wine,
We again have a flat section of the supply curve.
Fifth,aLC/aLW< PC/PW< a*LC/a*LW,the relative
supply of cheese is (L/aLC)/(L*/a*LW).
25
The Gains from Trade
– If countries specialize according to their
comparative advantage,they all gain from this
specialization and trade.
– We will demonstrate these gains from trade in
two ways.
– First,we can think of trade as a new way of
producing goods and services (that is,a new
technology).
Trade in a One-Factor World
26
– Another way to see the gains from trade is to consider
how trade affects the consumption in each of the two
countries.
– The consumption possibility frontier states the
maximum amount of consumption of a goods a country
can obtain for any given amount of the other
commodity.
– In the absence of trade,the consumption possibility
curve is the same as the production possibility curve.
– Trade enlarges the consumption possibility for each of
the two countries.
Trade in a One-Factor World
27
Trade in a One-Factor World
Figure 2-4,Trade Expands Consumption Possibilities
T
F
P
T *P *
F *
(a) Home (b) Foreign
Quantity
of wine,QW
Quantity
of cheese,QC
Quantity
of wine,Q*W
Quantity
of cheese,Q*C
28
Setting Up the Model
– Both countries consume and are able to produce a large
number,N,of different goods.
Relative Wages and Specialization
– The pattern of trade will depend on the ratio of Home to
Foreign wages.
– Goods will always be produced where it is cheapest to
make them.
For example,it will be cheaper to produce goods i in Home if waLi
< w*a*Li,or by rearranging if a*Li/aLi > w/w*.
Comparative Advantage
with Many Goods
29
Comparative Advantage
with Many Goods
Table 2-4,Home and Foreign Unit Labor Requirements
30
Which country produces which goods?
– A country has a cost advantage in any good for
which its relative productivity is higher than its
relative wage.
If,for example,w/w* = 3,Home will produce apples,
bananas,and caviar,while Foreign will produce
only dates and enchiladas.
Both countries will gain from this specialization.
Comparative Advantage
with Many Goods
31
Determining the Relative Wage in the
Multigood Model
– To determine relative wages in a multigood
economy we must look behind the relative
demand for goods (i.e.,the relative derived
demand).
– The relative demand for Home labor depends
negatively on the ratio of Home to Foreign
wages.
Comparative Advantage
with Many Goods
32
3
10
Apples
8 Bananas
4 Caviar
2
Dates
0.75
Enchiladas
RD
Comparative Advantage
with Many Goods
Figure 2-5,Determination of Relative Wages
RS
Relative wage
Rate,w/w*
Relative quantity
of labor,L/L*
33
Adding Transport Costs
and Nontraded Goods
There are three main reasons why specialization in
the real international economy is not extreme:
– The existence of more than one factor of production.
– Countries sometimes protect industries from foreign
competition.
– It is costly to transport goods and services.
The result of introducing transport costs makes some
goods nontraded.
In some cases transportation is virtually impossible.
– Example,Services such as haircuts and auto repair cannot
be traded internationally.
34
Summary
We examined the Ricardian model,the simplest
model that shows how differences between countries
give rise to trade and gains from trade.
In this model,labor is the only factor of production
and countries differ only in the productivity of labor
in different industries.
In the Ricardian model,a country will export that
commodity in which it has comparative (as opposed to
absolute) labor productivity advantage.
35
The fact that trade benefits a country can be
shown in either of two ways:
– We can think of trade as an indirect method of
production.
– We can show that trade enlarges a country’s
consumption possibilities.
The distribution of the gains from trade depends
on the relative prices of the goods countries
produce.
Summary
36
Extending the one-factor,two-good model to a
world of many commodities makes it possible to
illustrate that transportation costs can give rise to
the existence of nontraded goods.
The basic prediction of the Ricardian model-that
countries will tend to export goods in which they
have relatively high productivity- has been
confirmed by a number of studies.
Summary
LABOR PRODUCTIVITY
COMPARATIVE ADVANTAGE（ 比较优势）
THE RICARDIAN MODEL（ 李嘉图模型）
2
Chapter Organization
Introduction
The Concept of Comparative Advantage
A One-Factor Economy
Trade in a One-Factor World
Comparative Advantage with Many Goods
Adding Transport Costs and Nontraded Goods
Summary
3
Countries engage in international trade for
two basic reasons:
– They are different from each other in terms of
climate,land,capital,labor,and technology.
– They try to achieve scale economies in
production.
The Ricardian model is based on
technological differences across countries.
– These technological differences are reflected in
differences in the productivity of labor.
Introduction
4
On Valentine’s Day the U.S,demand for roses is
about 10 million roses.
Growing roses in the U.S,in the winter is difficult.
– Heated greenhouses should be used.
– The costs for energy,capital,and labor are substantial.
Resources for the production of roses could be used
to produce other goods,say computers.
The Concept of
Comparative Advantage
5
Opportunity Cost
– The opportunity cost of roses in terms of computers is the
number of computers that could be produced with the same
resources as a given number of roses.
Comparative Advantage
– A country has a comparative advantage in producing a goods
if the opportunity cost of producing that goods in terms of
other goods is lower in that country than it is in other
countries.
The Concept of
Comparative Advantage
6
Suppose that in the U.S,10 million roses can be
produced with the same resources as 100,000
computers.
Suppose also that in South America 10 million
roses can be produced with the same resources as
30,000 computers.
This example assumes that South American
workers are less productive than U.S,workers.
The Concept of
Comparative Advantage
7
If each country specializes in the production of the
goods with lower opportunity costs,trade can be
beneficial for both countries.
– Roses have lower opportunity costs in South America.
– Computers have lower opportunity costs in the U.S.
The benefits from trade can be seen by
considering the changes in production of roses and
computers in both countries.
The Concept of
Comparative Advantage
8
Table 2-1,Hypothetical Changes in Production
The Concept of
Comparative Advantage
9
The example in Table 2-1 illustrates the principle of
comparative advantage,
– If each country exports the goods in which it has comparative
advantage (lower opportunity costs),then all countries can in
principle gain from trade.
What determines comparative advantage?
– Answering this question would help us understand how
country differences determine the pattern of trade (which
goods a country exports).
The Concept of
Comparative Advantage
10
A One-Factor Economy
Assume that we are dealing with an economy
(which we call Home),In this economy:
– Labor is the only factor of production.
– Only two goods (say wine and cheese) are
produced.
– The supply of labor is fixed in each country.
– The productivity of labor in each goods is fixed.
– Perfect competition prevails in all markets.
11
The technology of Home’s economy can be summarized
by labor productivity in each industry,expressed in
terms of unit labor requirements:
– The unit labor requirement is the number of hours of labor
required to produce one unit of output.
Denote with aLWthe unit labor requirement for wine (e.g,if aLW = 2,
then one needs 2 hours of labor to produce one gallon of wine).
Denote with aLC the unit labor requirement for cheese (e.g,if aLC = 1,
then one needs 1 hour of labor to produce a pound of cheese).
The economy’s total resources are defined as L,the total
labor supply (e.g,if L = 120,then this economy is
endowed with 120 hours of labor or 120 workers).
A One-Factor Economy
12
Production Possibilities
– The production possibility frontier (PPF) of an economy
shows the maximum amount of a goods (say wine) that can
be produced for any given amount of another (say cheese),
and vice versa,Or illustrates the different mixes of goods the
economy can produce.
– The PPF of our economy is given by the following equation:
aLCQC + aLWQW = L (2-1)
– From our previous example,we get:
QC + 2QW = 120
A One-Factor Economy
13
L/aLW
L/aLC
Figure 2-1,Home’s Production Possibility Frontier
A One-Factor Economy
Absolute value of slope equals
opportunity cost of cheese in
terms of wine
F
P
Home wine
production,QW,
in gallons
Home cheese
production,QC,
in pounds
o
14
Relative Prices and Supply
– The particular amounts of each goods produced are
determined by prices.
– The relative price of goods X (cheese) in terms of goods
Y (wine) is the amount of goods Y (wine) that can be
exchanged for one unit of goods X (cheese).
– Examples of relative prices:
If a price of a can of Coke is $0.5,then the relative price of
Coke is the amount of $ that can be exchanged for one unit of
Coke,which is 0.5.
The relative price of a $ in terms of Coke is 2 cans of Coke per
dollar.
A One-Factor Economy
15
Denote with PC the dollar price of cheese and
with PW the dollar price of wine,Denote with wW
the dollar wage in the wine industry and with wC
the dollar wage in the cheese industry.
There are no profits in our one-factor model,the
hourly wage rate in the cheese sector will equal
the value of what a worker can produce in an
hour,PC/aLC.The hourly wage rate in the wine
sector will be PW/aLW.
A One-Factor Economy
16
The above relations imply that if the relative price
of cheese (PC / PW ) exceeds its opportunity cost
(aLC / aLW),then the economy will specialize in
the production of cheese.Or PC/aLC>PW/aLW.
In the absence of trade,both goods are produced,
and therefore PC / PW = aLC /aLW.
A One-Factor Economy
17
Trade in a One-Factor World
Assumptions of the model:
– There are two countries in the world (Home and Foreign).
– Each of the two countries produces two goods (say wine
and cheese).
– Labor is the only factor of production.
– The supply of labor is fixed in each country.
– The productivity of labor in each goods is fixed.
– Labor is not mobile across the two countries.
– Perfect competition prevails in all markets.
– All variables with an asterisk refer to the Foreign country.
18
Absolute Advantage
– A country has an absolute advantage in a production of a
goods if it has a lower unit labor requirement than the
foreign country in this goods.
– Assume that aLC < a*LC and aLW < a*LW
This assumption implies that Home has an absolute advantage in
the production of both goods,Another way to see this is to notice
that Home is more productive in the production of both goods than
Foreign.
Even if Home has an absolute advantage in both goods,beneficial
trade is possible.
The pattern of trade will be determined by the
concept of comparative advantage.
Trade in a One-Factor World
19
Comparative Advantage
– Assume that aLC /aLW < a*LC /a*LW (2-2)
This assumption implies that the opportunity cost of cheese in
terms of wine is lower in Home than it is in Foreign.
In other words,in the absence of trade,the relative price of cheese
at Home is lower than the relative price of cheese at Foreign.
Home has a comparative advantage in cheese and will
export it to Foreign in exchange for wine.
Trade in a One-Factor World
20
F*
P*
L*/a*LW
L*/a*LC
Foreign wine
production,Q*W,
in gallons
Foreign cheese
production,Q*C,
in pounds
+1
Figure 2-2,Foreign’s Production Possibility Frontier
Trade in a One-Factor World
21
Determining the Relative Price After Trade
– What determines the relative price (e.g.,PC / PW)
after trade?
To answer this question we have to define the relative
supply and relative demand for cheese in the world as a
whole.
The relative supply of cheese equals the total quantity
of cheese supplied by both countries at each given
relative price divided by the total quantity of wine
supplied,(QC + Q*C )/(QW + Q*W).
The relative demand of cheese in the world is a
similar concept.
Trade in a One-Factor World
22
2
RD'
RD
1
Q'
aLC/aLW
a*LC/a*LW RS
Figure 2-3,World Relative Supply and Demand
Trade in a One-Factor World
Relative price
of cheese,PC/PW
Relative quantity
of cheese,QC + Q*C
QW + Q*W
L/aLC
L*/a*LW
23
Trade in a One-Factor World
First,the RS curve shows that there is no supply of
cheese if the world price drops below aLC/aLW.
-Assume aLC/aLW<a*LC/a*LW,,Home will
specialize in the production of cheese.
-Home will specialize in the production of wine
whenever PC/PW<aLC/aLW,or PC/aLC<PW/aLW.
-Similarly,Foreign will specialize in wine
production whenever PC/PW<a*LC/a*LW.
Second,when the relative price of cheese,
PC/PW=aLC/aLW,Home workers are indifferent
between producing cheese and wine,We have a
flat section of the supply curve,
24
Trade in a One-Factor World
Third,for PC/PW>a*LC/a*LW,both Home and
Foreign will specialize in cheese production,
There will be no wine production,so that the
relative supply of cheese will become infinite.
Fourth,At PC/PW=a*LC/a*LW,Foreign workers are
indifferent between producing cheese and wine,
We again have a flat section of the supply curve.
Fifth,aLC/aLW< PC/PW< a*LC/a*LW,the relative
supply of cheese is (L/aLC)/(L*/a*LW).
25
The Gains from Trade
– If countries specialize according to their
comparative advantage,they all gain from this
specialization and trade.
– We will demonstrate these gains from trade in
two ways.
– First,we can think of trade as a new way of
producing goods and services (that is,a new
technology).
Trade in a One-Factor World
26
– Another way to see the gains from trade is to consider
how trade affects the consumption in each of the two
countries.
– The consumption possibility frontier states the
maximum amount of consumption of a goods a country
can obtain for any given amount of the other
commodity.
– In the absence of trade,the consumption possibility
curve is the same as the production possibility curve.
– Trade enlarges the consumption possibility for each of
the two countries.
Trade in a One-Factor World
27
Trade in a One-Factor World
Figure 2-4,Trade Expands Consumption Possibilities
T
F
P
T *P *
F *
(a) Home (b) Foreign
Quantity
of wine,QW
Quantity
of cheese,QC
Quantity
of wine,Q*W
Quantity
of cheese,Q*C
28
Setting Up the Model
– Both countries consume and are able to produce a large
number,N,of different goods.
Relative Wages and Specialization
– The pattern of trade will depend on the ratio of Home to
Foreign wages.
– Goods will always be produced where it is cheapest to
make them.
For example,it will be cheaper to produce goods i in Home if waLi
< w*a*Li,or by rearranging if a*Li/aLi > w/w*.
Comparative Advantage
with Many Goods
29
Comparative Advantage
with Many Goods
Table 2-4,Home and Foreign Unit Labor Requirements
30
Which country produces which goods?
– A country has a cost advantage in any good for
which its relative productivity is higher than its
relative wage.
If,for example,w/w* = 3,Home will produce apples,
bananas,and caviar,while Foreign will produce
only dates and enchiladas.
Both countries will gain from this specialization.
Comparative Advantage
with Many Goods
31
Determining the Relative Wage in the
Multigood Model
– To determine relative wages in a multigood
economy we must look behind the relative
demand for goods (i.e.,the relative derived
demand).
– The relative demand for Home labor depends
negatively on the ratio of Home to Foreign
wages.
Comparative Advantage
with Many Goods
32
3
10
Apples
8 Bananas
4 Caviar
2
Dates
0.75
Enchiladas
RD
Comparative Advantage
with Many Goods
Figure 2-5,Determination of Relative Wages
RS
Relative wage
Rate,w/w*
Relative quantity
of labor,L/L*
33
Adding Transport Costs
and Nontraded Goods
There are three main reasons why specialization in
the real international economy is not extreme:
– The existence of more than one factor of production.
– Countries sometimes protect industries from foreign
competition.
– It is costly to transport goods and services.
The result of introducing transport costs makes some
goods nontraded.
In some cases transportation is virtually impossible.
– Example,Services such as haircuts and auto repair cannot
be traded internationally.
34
Summary
We examined the Ricardian model,the simplest
model that shows how differences between countries
give rise to trade and gains from trade.
In this model,labor is the only factor of production
and countries differ only in the productivity of labor
in different industries.
In the Ricardian model,a country will export that
commodity in which it has comparative (as opposed to
absolute) labor productivity advantage.
35
The fact that trade benefits a country can be
shown in either of two ways:
– We can think of trade as an indirect method of
production.
– We can show that trade enlarges a country’s
consumption possibilities.
The distribution of the gains from trade depends
on the relative prices of the goods countries
produce.
Summary
36
Extending the one-factor,two-good model to a
world of many commodities makes it possible to
illustrate that transportation costs can give rise to
the existence of nontraded goods.
The basic prediction of the Ricardian model-that
countries will tend to export goods in which they
have relatively high productivity- has been
confirmed by a number of studies.
Summary
