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- University College London (UCL)
Lecture slides of international trade module
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International TradeBA Course
UCL, SSEES
Lecture 3: The Specific Factors Model
Idil Uz Akdogan
i.akdogan@ucl.ac.uk
,Introduction
• If trade is so good for the economy, why is there such
opposition?
• Two main reasons why international trade has strong
effects on the distribution of income within a country:
– In the short-run, resources (i.e. labour) cannot move
immediately or costlessly from one industry to anoth
– In the long-run, industries differ in the factors of
production they demand.
The specific factors model allows trade to affect incom
distribution in the short run.
, The Model’s Assumptions
• Two goods, cloth and food.
• Three factors of production: labour (L), capital (K) and l
(T for terrain).
• Perfect competition prevails in all markets.
• Cloth produced using capital and labour (but not land).
• Food produced using land and labour (but not capital).
• Labour is a mobile factor that can move between secto
• Land and capital are both specific factors used only in t
production of one good.
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