Production, Distribution, and Trade: General Equilibrium Models with One Single Cobb-Douglas Parameter

We present simple general equilibrium models of resource allocation, factor income distribution, and trade among nations that are technologically identical, but different in tastes. Under conditions of autarky, this paper highlights the importance of “tastes” that determine the intra-national factor shares of returns to productive factors. We demonstrate how a stronger taste for specified factor-intensive goods leads to higher returns to factors intensively used. Trade, in our model, however, erases both intra-national and inter-national factor income inequalities caused by taste differences. Trade, therefore, is no good news to those factors and income groups benefitting from autarky. Free trade therefore is a difficult proposal not only in practice, but also in theory.