GLOBE

The Production Possibility Frontier in the Immobile Factor Model

by Steven Suranovic ©1997-2004

Trade 70-12  

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To derive the PPF in the immobile factors model it is useful to begin with a PPF from the Ricardian model. In the Ricardian model the PPF is drawn as a straight line with endpoints given by and where L is the total labor endowment available for use in the two industries. [see Figure] Since labor is moveable across industries, any point along the PPF is a feasible production point which maintains full employment of labor.

Next let's suppose that some fraction of the L workers are cheesemakers while the remainder are winemakers. Let be the number of cheesemakers and be the number of winemakers such that . If we assume that these workers cannot be moved to the other industry then we are in the context of the immobile factor model.

In the immobile factor model the production possibility frontier reduces to a single point represented by the blue dot in the diagram. This is the only production point which generates full employment of both wine workers and cheese workers. The production possibility set is represented by the rectangle formed by the blue lines and the axes.

Notice that in the immobile factor model there is no defined opportunity cost of production. Since it is impossible, by assumption, to increase output of either good, opportunity cost is not defined. No opportunity cost also means that neither country has a comparative advantage as defined in the Ricardian model. However, this does not mean there is no potential for advantageous trade.


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International Trade Theory and Policy Lecture Notes: ©1997-2004 Steven M. Suranovic
Last Updated on 9/16/99