Assume that a country produces two goods, agriculture (which requires land and labor) and manufactured goods...

Assume that a country produces two goods, agriculture (which requires land and labor) and manufactured goods (which requires labor and capital), and is currently in autarky equilibrium. The country just finds that the international price ratio of agriculture relative to manufactured goods, i.e., P_A/P_M, in the world market is LOWER than the price ratio in its domestic market.

Use production-possibilities frontier (PPF) and indifference curves to show how this country may gain from trade and identify the trade triangle, including export and import quantities.
How will the nominal wage rate (w) be affected when there are not only a lower P_A but also a higher P_M? Illustrate your answer graphically.
For workers that spend a greater share of their income on agriculture goods, are they more likely to gain or lose from trade?
How will the real rental rates of capital and land be affected, respectively? Briefly explain why.

Solutions

Expert Solution

Please ask your query if any in comment.

PLEASE RATE THUMBS UP ??

THANKYOU

Please don't dislike the answer, feel free to ask your query if any in comment.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Suppose there are two countries (a capital-abundant country and a labor-abundant country) and two goods (labor-intensive...

Suppose there are two countries (a capital-abundant country and a labor-abundant country) and two goods (labor-intensive good X and capital-intensive good Y). The two countries have identical demand for the two goods and are considering forming a free trade agreement. However, while this agreement received support from most voters in country A, many voters in country B were concerned that the agreement will likely widen income inequality in country B. Please identify which country is likely labor abundant and which...

1. [13 marks] Assume that country D is a capital-abundance large-country and produces two goods, Steels...

1. [13 marks] Assume that country D is a capital-abundance large-country and produces two goods, Steels and Foods. Production of steels is capital-intensive while production of foods is labor-intensive. Suppose there is an increase in the endowment of capital in country D, while labor force is fixed. Using the Rybczynski theorem, explain the production effects due to the increment in capital stocks in country D (the production of steels and the production of foods after economic growth). Explains the implications...

Suppose that land is specific to agriculture, capital is specific to manufacturing, and labor is mobile...

Suppose that land is specific to agriculture, capital is specific to manufacturing, and labor is mobile between sectors. If you know that the nominal rental of capital and labor in manufacturing has fallen, then what can you say about the changes in the prices of manufactured goods and agricultural goods?

Consider a country, Home, which produces two goods, Cloth and Food, using capital and labour with...

Consider a country, Home, which produces two goods, Cloth and Food, using capital and labour with a constant-return-to-scale technology. Food production is capital-intensive and cloth production is labour-intensive. Capital and labour can move freely between the two industries. Finally, let’s assume that Home’s consumption decisions can be represented using regularly-shaped indifference curves. 1.When Home is not engaged in international trade, use a graphic to illustrate the consumption and production points in Home in autarky (pre-trade situation). (2 points) 2. Assume...

Consider a country that produces two goods cloth (C) and food (F) with two factors of...

Consider a country that produces two goods cloth (C) and food (F) with two factors of production: land (T) and labor (L). The technology for cloth and food are as follows. Qc= Min {1/20 L,T}, Qf= Min {1/5 L,T}, where Qc denotes the amount of cloth produced and Qf denotes the amount of food produced. Denote the wage by w and the rent of land by r. A).Suppose that the economy’s total resources are 600 hours of labor and 60...

A small country imports industrial goods and exports agricultural goods. Both industry and agriculture are perfectly competitive.

A small country imports industrial goods and exports agricultural goods. Both industry and agriculture are perfectly competitive. A new minimum wage law raises wages in industry but not in agriculture. However, all workers displaced from industry as a result of the new, higher wage find employment in agriculture. Is an import tax on industrial goods the best way to deal with any resulting problems? Why (not)?USE OF APPROPRIATE DIAGRAMS TO ANSWER EACH QUESTION IS ENCOURAGED.

Suppose that a Home country is a labor-abundant country, and produces bananas (labor intensive) and computers...

Suppose that a Home country is a labor-abundant country, and produces bananas (labor intensive) and computers (capital intensive). Given all the theory and assumptions of the Heckscher-Ohlin model holds true, answer the following questions: A). Draw and explain in a graph the free trade equilibrium for Home Country (Remember PPFs? Make sure to clearly indicate the production point, the consumption point, and the quantity of exports and imports). B). In the graph drawn above for question (a), show the effects...

Suppose that a Home country is a labor-abundant country, and produces bananas (labor intensive) and computers...

Suppose that a Home country is a labor-abundant country, and produces bananas (labor intensive) and computers (capital intensive). Given all the theory and assumptions of the Heckscher-Ohlin model holds true, answer the following questions: A). Draw and explain in a graph the free trade equilibrium for Home Country (Remember PPFs? ! Make sure to clearly indicate the production point, the consumption point, and the quantity of exports and imports). B). In the graph drawn above for question (a), show the...

The country of Freedonia produces cars and avocados using capital, which is specific to cars; land,...

The country of Freedonia produces cars and avocados using capital, which is specific to cars; land, which is specific to avocados; and labor, which is mobile between the two sectors. Freedonia has 100 workers, 100 units of capital and 400 acres of land. We assume our framework to be the “Specific-Factors Model”. a) Define the marginal product of labor and the marginal product of land in the avocado sector. [4 marks] b) Draw the production possibilities frontier for Freedonia with...

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...

Subjects