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Comparative Costs, the Invisible Hand, and Factor Endowments: Ricardo, Ohlin, and Samuelson

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  • Bjarne S. Jensen
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    Abstract

    The Ricardian principle of ‘comparative advantage’ refers to relative costs (relative autarky prices) compared to another country. The relative cost (price) functions can be obtained directly from specified cost functions with global regularity properties. We derive the CES relative cost function with two primary factor prices. The Stolper-Samuelson Theorem is embedded in relative cost functions and their numerical inelasticity property. Factor price equalization represents extreme parametric versions of the relative cost functions. Moreover a relative cost function connects isoquant tangents of contract curves with the tangents (shape) of production possibility curves. The CES relative cost function is combined with Ohlin‘s ‘mutual-interdependence theory of pricing’ in solving the Walrasian general equilibrium system.

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    Bibliographic Info

    Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c016_042.

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    Length: 39 pages
    Date of creation: Sep 2011
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    Handle: RePEc:deg:conpap:c016_042

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    1. Shoven,John B. & Whalley,John, 1992. "Applying General Equilibrium," Cambridge Books, Cambridge University Press, number 9780521319867, April.
    2. Opp, Marcus M. & Sonnenschein, Hugo F. & Tombazos, Christis G., 2009. "Rybczynski's Theorem in the Heckscher-Ohlin World -- Anything Goes," Journal of International Economics, Elsevier, vol. 79(1), pages 137-142, September.
    3. Ricardo, David, 1821. "On the Principles of Political Economy and Taxation," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, edition 3, number ricardo1821.
    4. Bagicha S. Minhas, 1962. "The Homohypallagic Production Function, Factor-Intensity Reversals, and the Heckscher-Ohlin Theorem," Journal of Political Economy, University of Chicago Press, vol. 70, pages 138.
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