Lessons from the Specific Factors Model of International Trade

The Specific Factors model is an excellent learning tool. It provides insights into the meaning of economic efficiency, how complex economies simultaneously determine prices and quantities (and that it is relative prices that matter), and how changes in demand conditions or technology can affect income distributions among owners of factors of production. The authors develop this model using spreadsheets. Spreadsheets help students deal with “what-if †questions within prepared spreadsheets. They also give students the chance to look into the workings of the model and to change its structure. The exercise spreadsheets provide important advantages over using “black-box†presentations. Moreover, using spreadsheets gives students an opportunity to practice their use of spreadsheet software.