Thus there is only one type of labor and one type of capital. The laborers and capital equipment in different industries are exactly the same. We also assume that labor and capital are freely mobile across industries within the country but immobile across countries. The total amount of labor and capital used in production is limited to the endowment of the country. The Labor Constraint is, where and are the quantities of labor used in clothing and steel production, respectively.
L represents the labor endowment of the country.
Full employment of labor implies the expression would hold with equality. The Capital Constraint is, where and are the quantities of capital used in clothing and steel production, respectively. K represents the capital endowment of the country. Full employment of capital implies the expression would hold with equality. Endowments The only difference between countries assumed in the model is differences in endowments of capital and labor.