Question
In: Economics
Consider two countries (Home and Foreign) that produce goods 1 (with labor and capital) and 2...
Consider two countries (Home and Foreign) that produce goods 1 (with labor and capital) and 2 (with labor and land) according to the production functions q1 = L10.5K0.5 and q2 = L20.5T0.5 where Li is the labor input in sector i = 1, 2, K is capital, and T is land.
a. Suppose there is capital inflow from the foreign country so that K increases. How would this affect the marginal product of labor in sector1. (If you do not know differentiation, just substitute numbers into the production function to see what happen.)
b. Assuming the prices of the two goods do not change. How would the capital inflow affect wage? Are the workers better off?
c. How does capital inflow affect the rentals to capital and land?
Solutions
Rahul Sunny answered 7 months agoRelated Solutions
Consider two countries (Home and Foreign) that produce goods 1 (with labor and capital) and 2...
Consider two countries (Home and Foreign) that produce goods
1 (with labor and capital) and 2 (with labor and land).
Initially, both countries have the same supply of labor
(100 units each), capital, and land. The capital stock in Home
then shrinks.
This change shifts in both the production curve for good 1 as a
function of labor employed and the associated marginal product of
labor curve. Nothing happens to the production and marginal product
curves for good 2.
a....
Consider a world with two countries, Home and Foreign, both able to produce two goods: cloth...
Consider a world with two countries, Home and Foreign, both able
to produce two goods: cloth and tablet computers. The production of
both goods uses
capital and labor in fixed proportions, with the tablets industry
using more capital per worker than the cloth industry. The units of
each input needed to produce one unit output are given by:
capital
Labor
Cloth
1
2
Tablets
2
1
Both countries have 150 units of capital available for production,
but the Home country...
There are two countries Home and Foreign. They can produce two goods, apples and bananas. Home...
There are two countries Home and Foreign. They can produce two
goods, apples and bananas. Home has 1,200 units of labor available
and Foreign has a labor force of 800. The table below contains the
unit labor requirement in Foreign and Home for each of two
goods.
Banana
Apples
Home
aB = 1 hour per pound
aA = 2 hours per pound
Foreign
aB = 4 hours per pound
aA = 5 hours per pound
1. Suppose that, after opening...
Consider two countries, Home and Foreign, trading two goods, Rice and Car. The Home country is...
Consider two countries, Home and Foreign, trading two goods,
Rice and Car. The Home country is endowed with abundant capital
relative to labor and hence has a comparative advantage to
specialize in Cars; whereas the Foreign country is endowed with
abundant labor and specializes in Rice. Once they start trading,
the price of cars decreases, and the price of rice increases in the
Foreign country. How would the increase in the price of
rice affect the income of each of...
Consider two countries, Home and Foreign, trading two goods, Rice and Car. The Home country is...
Consider two countries, Home and Foreign, trading two goods,
Rice and Car. The Home country is endowed with abundant capital
relative to labor and hence has comparative advantage to specialize
in Cars; whereas the Foreign country is endowed with abundant labor
and specializes in Rice. Once they start trading, the price of car
decreases, and the price of rice increases in the Foreign country.
How would the decrease in the price of car affect the income of
each of the...
Suppose two countries, home and foreign, produce two goods, timber and televisions. Assume that land is...
Suppose two countries, home and foreign, produce two goods,
timber and televisions. Assume that land is specific to timber,
capital is specific to televisions, and labor is free to move
between the two industries. When the Home country moves into doing
free trade with the Foreign country, the Home country exports
timber.
True or False. Explain
1. The Home country produces only timber under free trade.
2. Going from closed economy to free trade, the opportunity cost
of TV increases...
Consider an economy in which two factors of production, labor and capital, produce two goods, capital...
Consider an economy in which two factors of production, labor
and capital, produce two goods, capital intensive pharmaceuticals
and labor-intensive clothing. Suppose that both factors of
production are freely mobile across both industries and that all
producers, consumers, capitalists and workers are price-takers.
Suppose that there are currently steep tariffs on all imported
goods, but there is a bill before Parliament to eliminate those
tariffs, and the government has invited citizen representatives of
workers and capitalists to express their opinions...
Consider the Heckscher-Ohlin model with two countries, Home and Foreign, and two goods, carpets and tableware....
Consider the Heckscher-Ohlin model with two countries, Home and
Foreign, and two goods, carpets and tableware. There are two
factors, capital and labour, each of which can be used in the
production of either good. Home is capital abundant whereas Foreign
is labour abundant. Let PC and PT represent the prices of carpets
and tableware, respectively. Assume that under autarky we have
(PC/PT) Home < (PC/PT) Foreign. Moreover, assume that there is
some degree of substitutability in production between capital...
Two countries, Spain and Portugal, use two inputs, capital and labor, to produce two goods, wine...
Two countries, Spain and Portugal, use two inputs, capital and
labor, to produce two goods, wine and cheese. Wine is relatively
capital intensive in production and Spain is the relatively capital
abundant country.
5) According to the Rybczynski Theorem, if Portugal were a small
country with a free trade policy, growth of the labor force would
cause:
Question 5 options:
wages to fall, and the reward to capital to increase in
Portugal.
expansion of the cheese industry and contraction of...
Two countries, Spain and Portugal, use two inputs, capital and labor, to produce two goods, wine...
Two countries, Spain and Portugal, use two inputs, capital and
labor, to produce two goods, wine and cheese. Wine is relatively
capital intensive in production and Spain is the relatively capital
abundant country.
4) According to the Factor Price Equalization Theorem wages
(earnings from labor) and rent (earnings from capital) between
Spain and Portugal will equalize:
Question 4 options:
with migration of labor and free international movement of
capital.
solely due to labor migration.
solely due to the free international...
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