There are several factors of production.
CA depends on the differences
The Production Function
Setting , where
And it follows Constant Return to Scale .
Recall the definition of diminishing marginal returns
Model Set-up
2 Country, 2 Sector, 2 Factor Model
Important Assumption
Factors
- Aggregate endowment of factors is fixed
- Factors are completely mobile across sectors
- Factors are completely immobile across countries
- Wage () and rent () determined in national factor markets
- Aggregate factor abundance differs across countries
Production Function
- Indifference in production technologies across countries
- Differences in production technologies across sectors
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