1. Comparative advantage in many goods Radoslav Jakubčo Dávid Žitňanský

2. Model We have a model with two countries – home (a) and foreign (a*) Just one production factor= labor Both countries produce N products (1,...,N) Labor – amount of hours (L) to produce one unit (i) Označenie: Home´s unit labor requirement for particular good is a Li Foreign´s unit labor requirement for particular good is a* Li

3. Costs of production (i) in home is wa Li and in foreign is wa* Li When: wa Li w/w*, it will be produced in home On the other hand: wa Li > w*a* Li ; a* Li /a Li < w/w*, it will be produced foreign

4. Problem GoodHome unit labor a Li Foreign unit labor a* Li Relative home production advantege a* Li / a Li Tanks22412 Fighter Jets3279 Helicopters8405 Cuison vehicles10303 Submarines15120,8

5. Solution(part1) Asume that wage at home is higher a)8 times b)5,5 times w/w* a)8 / 1 = 8 b)5,5 / 1 = 5,5 Which products should be made in home in a) and b) a* Li /a Li > w/w* a.12 > 8 ; 9 > 8 b.12 > 5,5 ; 9 > 5,5

6. From the calculation we can see that home will produce: Z výpočtu vyplýva, že domáca krajina má nákladovú výhodu vo výrobe: a)Tanks and fighter jets b)Tanks and fighter jets Which means that all other goods will be IMPORTED from Foreign

7. Foreign has better productivity with lower wages for these goods: A.Helicopters: costs will be 40/5,5=7,2727 hours while in home it was 8 B.Cuison Vehicles: costs just 40/5,5=7,2727 while in home it was 10 C.Submarines: costs will be 12/5,5=2,1818 while in home it was 15

8. Determine the relative wage with more goods When determing the relative wage in economy with more goods we need to find out the relative demand for product and the relative demand for labor Reasons of decrease in relative demand for labor: Home wage is higher than in foreign – home products are more expensive – demand for them in foreign decrease Higher wage at home – lower production at home – lower demand for labor

9. Solution (part 2) At home the wage is 5,5 times higher than in foreign – so it prodeces only tanks fighter jets If the wage will be 8,8 times higher – the specialization of the market will not change Lower:  Relative demand for products  Demand for labor

10. Imagine the wage in home will rise 9,1 times what will happen? -Home will stop producing fighter jets as it will be more efficient to import them -Foreign will produce it  Assume that wage will rise 12,1 times – all goods will be made by foreign country

11. Ricardian model of more goods for determination of relative wage (determined by the intersection of the dericated relative demand curve for Labor and relative supply Relative quantity of labor L/L* Relative Wage rate w/w*

12. Ďakujeme za pozornosť