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Book Reports
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| Number of pages / Number of words: |
10 / 2696 |
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We imagine, and therefore assume, that different industries, producing different goods, have different capital-labor ratios. It is this ratio (or proportion) of one factor to another that gives the model its generic name: the factor-proportions model.
In a model in which each country produces two goods, an assumption must be made as to which industry has the larger capital-labor ratio...
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Thus, if the two goods that a country can produce are steel and clothing, and if steel production uses more capital per unit of labor than is used in clothing production, then we would say the steel production is capital-intensive relative to clothing production. Also, if steel production is capital-intensive, then it implies that clothing production must be labor-intensive relative to steel...
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