1. Endowment, Production, Distribution Heckscher-Ohlin, Factor Price Equalization, Stopler-Samuelson

2. 1/w 1/r L K Isocost Line C = $1

3. 1/w 1/r L K Isocost Line C = $1

4. 1/w 1/r L K -w/r Isocost Line C = $1

5. F=1/p F L K Food Isoquants

6. C=1/p C L K Clothing Isoquants

7. F=1/p F C=1/p C L K

8. 1/w 1/r L K -w/r Isocost Line C = $1

9. F=1/p F C=1/p C 1/w 1/r L K -w/r

10. F=1/p F C=1/p C 1/w 1/r L K -w/r

11. Figure 6.5 Unit-Value Isoquants

12. F=1/p F C=1/p C 1/w 1/r L K -w/r H G B F A

13. F=1/p F C=1/p C 1/w 1/r L K -w/r H G B F A LBLB LALA KAKA KBKB

14. F=1/p F C=1/p C 1/w 1/r L K -w/r H G B F A Increase in the Price of Cloth

15. F=1/p F C=1/p C 1/w 1/r L K -w/r H B F C=1/p' C 1/w' 1/r' w'/r' Increase in the Price of Cloth

16. F=1/p F C=1/p C 1/w 1/r L K -w/r H B F C=1/p' C 1/w' 1/r' Decrease in the Price of Cloth C=1/p" C 1/r" -W"/r"

17. F=1/p F C=1/p C 1/w 1/r L K -w/r H G B F A

18. Let the national supply of capital and labor be Let, and Suppose then Diversification Cone

19. L K k (L*,K*) L* K* A B

20. F=1 C=1/P C1 (K 1,L 1 ) A B k1k1 K L

21. F=1 C=1/P C2 (K 2,L 2 ) C D k2k2 K L

22. F=1 C=1/P C3 (K 3,L 3 ) E F k3k3 K L

23. F=1 C=1/P C1 C=1/P C2 C=1/P C3 P C1 >P C2 >P C3 (K 1,L 1 ) (K 2,L 2 ) (K 3,L 3 ) A C B D E F k1k1 k2k2 k3k3 K L

24. F=1 C=1/P C2 C=1/P C3 P C1 >P C2 >P C3 (K 2,L 2 ) (K 3,L 3 ) C D E F k2k2 k3k3 K L

25. F=1 C=1/P C2 C=1/P C3 P C2 >P C3 (K 2,L 2 ) (K 3,L 3 ) C D E F k2k2 k3k3 K L

26. F=1 C=1/P C2 C=1/P C3 P C2 >P C >P C3 (K 2,L 2 ) (K 3,L 3 ) C D E F k2k2 k3k3 K L Free Trade Equilibrium with Equilibrium Price P C

27. Results Heckscher-Ohlin –Countries specialize in the commodity that is intensive in its relatively abundant factor Factor Price Equalization –If both commodities produced in both countries, commodity price equalization leads to factor price equalization Stolper-Samuelson –Moving from autarky to free trade is an advantage to the relative abundant factor.