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Part IIa: Paper 1 General Equilibrium and Welfare Economics Dr Hamish Low

1. Outline: Trade and Production. Solving GE Models Competitive equilibrium in production: deriving PPF What happens to factor prices when the price of a final good changes? Stolper-Samuelson Theory What happens to production when factor endowments change? Rybczynski Theorem Explaining the pattern of trade: Heckscher-Ohlin.

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Part IIa: Paper 1 General Equilibrium and Welfare Economics Dr Hamish Low

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    1. Lecture 3 Part IIa: Paper 1 General Equilibrium and Welfare Economics Dr Hamish Low

    2. 1 Outline: Trade and Production

    3. 2 Solving General Equilibrium Models

    4. 3 Solution Steps

    5. 4 (1) Solving consumer�s problem

    6. 5

    7. 6

    8. 7

    9. 8

    10. 9

    11. 10

    12. 11

    13. 12 Profit Maximisation

    14. 13 Edgeworth Box

    15. 14

    16. 15

    17. 16

    18. 17

    19. 18

    20. 19

    21. 20 Summary Can show competitive equilibrium in production (MRTS Condition). This translates into a production possibility frontier. For any given price vector, can determine the optimal split between goods and hence the necessary ratio of factor prices to clear the market. An increase in the price of the final good leads to an increase in the price of the factor used intensively in the production of that good.

    22. 21 Outline

    23. 22 What happens to production when factor endowments change?

    24. 23

    25. 24

    26. 25

    27. 26 Hecksher-Ohlin Model

    28. 27

    29. 28 Allowing trade

    30. 29

    31. 30 What goods would we expect a country to export?

    32. 31 How would we expect wages to differ across countries?

    33. 32

    34. 33 Key Assumptions

    35. 34 Summary

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