Factors of production definition free#

The ratios of factors with which different countries are endowed. The ratios of factors employed in different industries. The productivity of a single factor may refer to either its marginal or its average product.ġ. Since, with perfect competition, profit implies disequilibrium, this shows a lower bound on equilibrium factor prices.ġ.

Factors of production definition free#

One of the major theoretical results of the Heckscher-Ohlin Model with at least as many goods as factors: free and frictionless trade will cause FPE between two countries if they have identical, linearly homogeneous technologies and their factor endowments are in the same diversification cone.Ī curve in factor space showing the minimum combinations of factor prices consistent with absence of profit in producing one or more goods, given their prices. Samuelson (1948, 1949) showed formally the circumstances under which they would actually become equal. Ohlin (1933) argued that trade would bring factor prices closer together. The tendency for trade to cause factor prices in different countries to become identical. Does not normally refer to the price of acquiring ownership of the factor itself, which might be called the 'purchase price.' Includes the wage or salary of labor and the rental prices of land and capital. The price paid for the services of a unit of a primary factor of production per unit time. The amount paid to a factor for its service in production. Usually means international factor movement. The degree to which a factor of production, such as labor or capital, is able to move, either among industries or among countries, in response to differences in its factor price, thus tending to eliminate such differences. The market for a factor of production, such as labor or capital, in which supply and demand interact to determine the equilibrium price of the factor. The absence of factor intensity reversals. Some propositions of the Heckscher-Ohlin Model require the absence of FIRs. One may be relatively capital intensive at high relative wages and labor intensive at low relative wages. Most commonly defined by ratios of factor quantities employed at common factor prices, but sometimes by factor shares or by marginal rates of substitution between factors.Ī property of the technologies for two industries whose ordering of relative factor intensities differs at different factor prices. The relative importance of one factor versus others in production in an industry, usually compared across industries. The total earnings of a factor, thus its factor price times the quantity of factor service that it provides. The quantity of a primary factor present in a country. The term is used especially when the value of economic activity in a sector or an economy can be measured or valued either at 'factor cost,' adding up payments to factors, or at ' market value or market price,' adding up revenues from goods sold.Ī comparative advantage of a country, or a competitive advantage of a firm or national industry, that derives from low factor cost, as opposed, for example, to a superior technology. The cost of the factors used in production. The trade pattern of a country or the world, focusing on factor content of the goods and services that are traded, as opposed to the commodity pattern of trade.

With F factors, G goods, and A= the Fx G matrix of factor f per unit output of good g, the factor content of a G-vector X of trade or consumption is AX. Can be either direct or direct-plus-indirect. The amounts of primary factors used in the production of a good or service, or in a vector of quantities of goods and services, such as the factor content of trade or the factor content of consumption.

) are the production functions being compared, V 1 is the factor being augmented, V 2 is a vector of all other factor inputs, and λ is a constant.

Said of a technological change or technological difference if production functions differ by scaling of a factor input only: F 2( V 1, V 2)= F 1(λ V 1, V 2), where F 1( Fundamental to the H-O Model.Īn increase in the quantity of a factor, usually capital or sometimes human capital. Because, in the short run at least, the supplies of primary factors are more or less fixed, this can be taken as given for determining much about a country's trade and other economic variables. The abundance or scarcity of a primary factor of production. Anything that helps to cause something, as a 'contributing factor.' Sometimes refers to any input to production.ģ. or German firms, and it is also illegal in many countries where payments are made.Ģ. firms under the Foreign Corrupt Practices Act, but not for U.K. Making such a payment abroad is legal for U.S. It is, in fact, a bribe, but a small one that does not induce illegal or exceptional behavior. A facilitating (or facilitation) payment is payment for 'routine governmental action,' such as providing normal services.