Ohlin Two Country Model

Figure has been drawn to represent Ohlin’s two country model XYZQ and XYZQ are a pair of boxes (on the same scale corresponding to two counters A and B



In the figure X and X represent the organs for the X Isoquants and Y, Y denote the organs for the Y - Isoquants of the two countries respectively. Country A is capital abundant as XQ > XQ (the axis representing capital). Country B is labour- abundant as XZ > XZ (the axis representing labour).

XY is the contract curve of country A nd XY is the contract curve of country B. A point M is chosen on the XY contract curve so that line XM from X – organ and YM from Y- origin are obtained. In the box X’YZ’Q of country B, a line X’R parallel to XM in XYQZ is drawn so that LQXR = QXM similarly, line YP is drawn parallel to YM. X’R and Y’P’ intersect at point M;

Lancaster, then, observing the Theorem of corresponding points shows that M and M from a pair of points such that:

(1) If M is on the contract curve of A then M is on the contract curve of B.

(2) The marginal productivities of labour and capital both, into eh produiotn of X and Y, are the same at M as at M.

(3) The commodity price ratio (PX/PY) at M is the same as at M.

(4) The volume of the two goods X and Y produced at M and M are of course different country A produces relatively more of x which is capital intensive goods. And country B produces relatively more of Y which is labour intensive. That means each country produces relatively more of the goods which uses relatively greater proportion of its abundant factor.

This thiorm of corresponding points can be easily proved.

Since the producing functions are homogeneous in both the countries, X  Isoquants in countries A and B are identical since QMR = QXM those properties relevant to the X Isoquants which hold along XM are also applicable along X’M’ in the same way the properties relevant to the Y- Isoquants holding along YM hold good along Y’M also .

As such the marginal productivities of labour and capital in the production of X along XM are the same as long X’M so is the case with their marginal productivities in Y; they are same along Y’M as along XM M is the common point of XMind Y Mind M that of X’M’ and Y’ M that means the marginal productivities of labour and capital in the producing of X and Y are the same at M as at M.

Since M lies on the contract curve of A 

(MPL/MPK) = (MPL/MPK)

Services: - Ohlin-Two Country Model Homework | Ohlin-Two Country Model Homework Help | Ohlin-Two Country Model Homework Help Services | Live Ohlin-Two Country Model Homework Help | Ohlin-Two Country Model Homework Tutors | Online Ohlin-Two Country Model Homework Help | Ohlin-Two Country Model Tutors | Online Ohlin-Two Country Model Tutors | Ohlin-Two Country Model Homework Services | Ohlin-Two Country Model