Question

What are the ‘Lessons’ of the Specific Factor Model? Demonstrate this lesson using formal modeling (either graphs or equations).

Answer 1

Answer

Lessens /Result of Specific Factor Model (SFM)

• The Specific factor model (SFM ) is generally used to determine or showcase the effects of changing economy on different type of aspect like factor return , output level and allocation of labours . In SFM there are Many types of economic changes that can be considered, involving a movement to trade free , and sometimes the implementation of a tariff or quota, it can be development of the labor or capital endowment, or may be technological advancement or changes . In an international trade filed the prices might change when a specific country liberalizes the trade or when it implement barriers to trade in some situation
• when the Specific factor model (SFM ) is used in an international trade , there is a need of differences of some kind between the country so that trade can be introduced . The standard approach of the SFM goes like assuming that the countries have the difference in the specific factors whihc are used in individual industry in relation to to the total quantity of labor. which leads or result to cause the PPFs in these two countries to differ resulting in potentioal trade between the two. ,The Specific Factor model is a simplest variety of the H-O model. The Trade may occur because of the differences in capital,technological differences , demands differences , or many others

ILLUSTRATION OF SFM

IN Specific factor Model , a organization will maximizing its profits when it will produces a certain level of output so that the payment or wages that it must pay to workers employed which will be same as the value of the marginal product at the selected level of output. For example we are taking a textile firm to illustrate the SFM which is written in equation form ,

w = P(t) * MP(t)

In the above equation The LHS of the equation depicts the hourly charge or wage the organization paying to its workers. The RHS represents the value of the marginal product. which is the Multiplication of market price obtained of output i-e Pt and the marginal product price of production MPt . Here the marginal product MP (t) indicates the optional output that can be achieved if labour input is increased by 1 unit. Suppose that if MP(t) = 12, which shows that if we add one more hour of labor, then 12 additional metre of clothes could be produce. The units of MP(t) meter/hr. When it is multiplied by the market price, ($/m), W yields the amount that could be earned per hour of extra labor applied in production. ​​​​​​​