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In: Economics

Suppose that there are drastic technological improvements in shoe production in Home such that shoe factories...

Suppose that there are drastic technological improvements in shoe production in Home such that shoe factories can operate almost completely with computer-aided machines. Consider the following data for the Home country:

Computers Shoes Sales revenue = PCQC = 100 Sales revenue = PSQS = 100 Payments to labor = W LC = 50 Payments to labor = W LS = 10 Payments to capital = RKC = 50 Payments to labor = RKS = 90 Percentage increase in the price = ∆PC PC = 0% Percentage increase in the price = ∆PS PS = 40%

a. Which industry is capital-intensive?

b. Given the percentage changes in output prices in the data provided, calculate the percentage change in the rental on capital.

c. How does the magnitude of this change compare with that of change in the earnings of labor?

d. Which factor gains in real terms, and which factor loses? Are these results consistent with the Stohlper-Samuelson theorem?

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