(1)
(2)
(3)
(4)
Total differentiation of (3) gives
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Therefore,
(3)’
By the same method, from (4),
(4)’
Manipulating equation (3)’ gives
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where ^ denotes change rates
.
Defining
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we have two equations
(5)
(6)
For a small country, when endowments change, factor intensity will not change (as it is decided by the world prices).
With
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![]()
(5) and (6) are
(5)’
(6)’
From (5)’ and (6)’,
![]()
If L increases (while K is fixed),
![]()
(remind ![]()
Result: ![]()
What do we get?
1. Factor endowment and production
2. Magnification effects