SUBJECT 1: International Mobility of Labor and Capital

1. Amount of capital and labor.

The amount of labor and capital used in each industry must add up to the total for the economy, so

 and 

We have that  and  so

 and 

From these two quotations we can find  and  :

So 

From the above we have:

 and

2. Amount of capital and labor.

The amount of labor and capital used in each industry must add up to the total for the economy, so

 and 

We have that  and  so

 and 

From these two quotations we can find  and  :

So 

From the above we have:

 and

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3. Amount of capital and labor.

The amount of labor and capital used in each industry must add up to the total for the economy, so

 and 

We have that  and  so

 and 

From these two quotations we can find  and  :

So 

From the above we have:

 and

4. Rybczynski theorem.

Comparing parts a and part b, the increase in the amount labor in the economy has increased the amount and capital devoted to textiles (Lt=125, Kt= 250) and decreased the amount of labor and capital devoted to automobiles. Therefore, the output of textiles increases and the output of automobiles decreased, due to the overall increase in labor. Textiles are labor- intensive because they use 2 units of capital per unit of labor and automobiles are capital- intensive because they use 10 units of capital per unit of labor (Png, 2002).

The change in outputs is in accordance with the Rybczynski Theorem so the increase in labor has increased the output of the labor-intensive good and decreased the output of the other good.

Comparing (b) with (c) there is an increase in the amount of capital in the economy. In accordance with the Rybczynski Theorem there has been a rise in the amount of labor and capital devoted to automobiles production and a fall in the amount of capital devoted to textiles production.

SUBJECT 2: International Mobility of Labor and Capital