The Specific Factors Model Figure 3-4: The Allocation of labor Wage rate, w Wage rate, W PFXMPLF (Demand curve for labor in food) W Pu MPl (Demand curve for labor in manufacturing) Labor used in Labor used manufactures, LM in food L Total labor supply, L Copyright C 2003 Pearson Education, Inc lide 3-16
Copyright © 2003 Pearson Education, Inc. Slide 3-16 PM X MPLM (Demand curve for labor in manufacturing) PF X MPLF (Demand curve for labor in food) Wage rate, W Wage rate, W W1 1 L1 M L1 F Total labor supply, L Labor used in manufactures, LM Labor used in food, LF Figure 3-4: The Allocation of Labor The Specific Factors Model
The Specific Factors Model At the production point the production possibility frontier must be tangent to a line whose slope is minus the price of manufactures divided by that of food Relationship between relative prices and output MPLPMPLM=-PMPE (3-7) Copyright C 2003 Pearson Education, Inc lide 3-17
Copyright © 2003 Pearson Education, Inc. Slide 3-17 ▪ At the production point the production possibility frontier must be tangent to a line whose slope is minus the price of manufactures divided by that of food. ▪ Relationship between relative prices and output: -MPLF /MPLM = -PM/PF (3-7) The Specific Factors Model