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46108130
1)a)False
As Price of Manufacturing (Pm) goes up, Labor of Manufacturing(Lm)
increases so that the Marginal Product of Capital (MPKm). This means the
rental for capital goes up. Capital Owners can afford to buy more of both
goods so they are better off. The relative rise in price of manufacturing on
agriculture means that capital owners gain more than land owners.
b)True
None of the factors of productions will change as the relative price (the slope
on line tangent Homes PPF). There will be no change in Utility
2)
Consider the Specific Factors model of trade. Take a country, Sweden, that produces two goods,
Furniture (F) and Meatballs (M). Production in each sector requires capital (K), which is
perfectly mobile across sectors, and labor which has skills specific to each sector: carpenters
(LF) can only produce Furniture and cooks (LM) can only produce Meatballs
a) i)
ii) The relative price of Meatballs will have an increase in the marginal
product of capital of cooks. There is an ambiguous effect on the real
wage.
b) i)
Rishi Chhagan
46108130
v)The real return of capital of meatballs decreases and the real return
of capital of furniture increases. The real wage of both carpenters and
cooks will increase but carpenters will gain more than cooks.
vii) Cooks and labor associations will not be happy with trade
3a) From the data shown, Netherlands (NLD) is both more labor and capital
abundant.
b) In 2007 for the textiles industry, Portugal is more labor intensive than
Netherlands (EMP). Netherlands is more Capital intensive as a whole , but
less capital intensive in the specific textile industry. Portugal can be seen as
more labor intensive. Ranking of sectors is different in both countries