A Model of a Two-Factor Economy Assumptions of the model An economy can produce two goods, cloth and food The production of these goods requires two inputs that are in limited supply; labor (l)and landt) Production of food is land-intensive and production of cloth is labor-intensive in both countries Perfect competition prevails in all markets Copyright C 2003 Pearson Education, Inc Slide 4-4Copyright © 2003 Pearson Education, Inc. Slide 4-4 ▪ Assumptions of the Model • An economy can produce two goods, cloth and food. • The production of these goods requires two inputs that are in limited supply; labor (L) and land (T). • Production of food is land-intensive and production of cloth is labor-intensive in both countries. • Perfect competition prevails in all markets. A Model of a Two-Factor Economy