International Factor Movements

Running Head: International Factor Movements International Factor Movements Name Affiliation 28 March 2011 Contents TOC \o "1-3" \h \z \u It leads to a convergence of real wage rates.. PAGEREF _Toc289088483 \h 3It increases the world`s output as a whole. PAGEREF _Toc289088484 \h 3Despite this gain, some people are hurt by the change. PAGEREF _Toc289088485 \h 4 It leads to a convergence of real wage rates. Real wages rise in Home,fall in Foreign. The three points as stated in the explanation refer to the fact that in countries which participate in international movements, labor moves to foreign countries where there is higher income till the wage rate equalizes. This is because as the supply of labor increases in the foreign countries, the wage rates fall till the real wage rate after exchange rate fluctuations becomes similar. On the flip side of the coin, as labor moves away from the Home country, the supply of labor is short and with demand being constant, real wage rates rise. It increases the world`s output as a whole. Foreign`s output rises by thearea under its marginal product curve from L1 to L2, while Home`s falls bythe corresponding area under its marginal product curve. We see from thefigure that Forei...