Trade in a One-Factor World a Assumptions of the model There are two countries in the world(Home and Foreign) Each of the two countries produces two goods(say wine and cheese Labor is the only factor of production The supply of labor is fixed in each country The productivity of labor in each goods is fixed Labor is not mobile across the two countries Perfect competition prevails in all markets All variables with an asterisk refer to the Foreign country Copyright C 2003 Pearson Education, Inc Slide 1-17Copyright © 2003 Pearson Education, Inc. Slide 1-17 Trade in a One-Factor World ▪ Assumptions of the model: • There are two countries in the world (Home and Foreign). • Each of the two countries produces two goods (say wine and cheese). • Labor is the only factor of production. • The supply of labor is fixed in each country. • The productivity of labor in each goods is fixed. • Labor is not mobile across the two countries. • Perfect competition prevails in all markets. • All variables with an asterisk refer to the Foreign country