1. Consider the Specific Factors model with two countries, Home and Foreign, with two goods, cloth (c) and food (f), and three factors, capital K, labour L and land T. The production functions are given by F.(Ke, Le) = Kề Lề and F7(Lf,T;) = LT}.
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- Consider a specific-factors model where two Countries, Denmark and Tanzania, use labor to produce cake (C) and helicopters (H). However, arable land (A) are a factor specific to cake, and jerrycans (J) are a factor specific to helicopters. Suppose that Tanzania has L = 100 workers, J = 40 jerrycans, and A = 1000 arable land. The production functions and marginal products of labor for cake and helicopters are: C = 4 x Lc %D 0.5 x A0.5 MPLC = 2 x Lc0.5 x A0.5 H = 4 x LH0.5 x J0.5 MPLH = 2 x LH-0.5 x J0.5 In Tanzania, the price of crystals is 20 and the price of hyperdrives is 200. In this case, the wage rate will be ___ and the cake industry and will be employed in the helicopter industry. %3D workers will be employed in workersConsider a specific-factors model where two Countries, Denmark and Tanzania, use labor to produce cake (C) and helicopters (H). However, arable land (A) are a factor specific to cake, and jerrycans (J) are a factor specific to helicopters. Suppose that Tanzania has L = 100 workers, J = 40 jerrycans, and A = 1000 arable land. The production functions and marginal products of labor for cake and helicopters are: C = 4 x Lc0.5 x A0.5 MPLc = 2 x Lc-0.5 x A0.5 H = 4 x LH0.5 x J0.5 MPLH = 2 x LH-0.5 x J0.5 In Tanzania, the price of crystals is 20 and the price of hyperdrives is 200. In this case, the wage rate will be ________ and ________ workers will be employed in the cake industry and __________ workers will be employed in the helicopter industry.Consider the Specific Factors model with two countries, Home and Foreign, with two goods, cloth (c) and food (f), and three factors, capital K, labour L and land T. The production functions are given by 1 1 Fc(Kc, Lc) = K² Lễ and Fƒ(Lƒ,Tƒ) = L = = That is, capital is specific to cloths and land to food. Suppose that the countries' factor endowments are KH : 1 = KF, LH = 1 and LF 1, and TH 1 and TF = 1/2, so that the total labour force is 1 in both countries. The price of capital is denoted by r, the price of land by q and the price of labour by w. Denote the goods' prices by pc and pƒ, and normalise pf = 1 for simplicity. The demand for cloth and food in country j = H, F is given by x and r lyj lyj x² and x 2 pc 2 p where YJ denotes aggregate income in country j. (a) Draw or compute the PPFs of Home and Foreign. (b) Derive the autarky equilibrium in Home, showing that L = L and r² = qH. (c) Compute the autarky equilibrium in Foreign and compare equilibrium prices in Home and in…
- In the Heckscher Ohlin two good (food and cloth), two factor (capital and labour) model suppose that the following information is given: The economy has 6,000 units of capital and 4,000 units of labour. Also, Producing one yard of cloth requires a combination of 4 labour-hours and 4 machine-hours. The production of one unit of food requires 2 labour-hour and 6 machine-hour. There is no possibility of substitution labour for capital. Write out the resource constraint equation for (a) capital (b) labour (c) What can you say about the shape and characteristics of the PPF? (d) Draw the PPF of this economy and explain what is going on.Consider two competitive economies that have the same quantities of labor and capital (K=L), and the same technology. The economies of the countries are described by the following Cobb–Douglas production functions: North Economy: Y = AK^0.7 L^0.3 South Economy: Y = AK^0.3 L^0.7 If half of workers (L) in North immigrated to South, explain how would total output, marginal produc- tivity of labor, and labor’s share of income in the two economies change?Suppose that two countries have the following endowments of Labor and Capital. Country A: Country B: 1000K 200L 200K 100L Which statement is true? Country A has less Capital and is relatively Capital-Endowed. Country B has more Labor and is relatively Capital-Endowed. Country A has more Labor and is relatively Capital-Endowed. Country B has more Capital and is relatively Capital-Endowed.
- Short Answer Assume there are two goods: airplanes (a) and bananas (b). The labor-to-capital ratios are 4 and 8, respectively. The labor-to-capital ratio in the wholeeconomy is 5. What is the fraction of capital (over the total amount of capital in the economy) used in the production of airplanes? Assume there is one good in the economy. The good is produced using a standard Cobb-Douglas production function. Give an intuition for why output price does not affect the capital-to-labor ratio?The data in the table below are for the small country of Xanadu. Assume that the economy is originally producing combination C. F Capital Goods Capital Goods 2 Consumer Goods A 0 125 B 10 100 C 14 75 D 18 50 E 20 25 21 8 a. A technological change occurs that enables Xanadu to produce 40% more units of capital goods. Complete the row Capital Goods 2, in the table above, given this technological change. Enter your responses, both above and below, rounded to 1 decimal place. more capital goods as a b. Assuming the economy wants to continue with the same quantity of consumer goods, it can have result of the technological improvement. c. Assuming the economy wants to continue with the same quantity of capital goods, it can have result of the technological improvement. d. Before the technological change, the opportunity cost of the first 100 consumer goods was e. After the technological change, the opportunity cost of the first 100 consumer goods is more consumer goods as a (Click to…Consider a specific-factors model where two countries, Denmark and Tanzania, use labor to produce cameras (C) and helicopters (H). However, apertures (A) are a factor specific to cameras, and jerrycans (J) are a factor specific to helicopters. Suppose that labor is freely mobile between both industries. Suppose that by opening up to trade the price of cameras in Tanzania falls by 5%, wages fall by 3%, and the price of helicopters does not change. Use the following information to determine how these affect the rental rates of apertures and jerrycans: Cameras: Sales Revenue 30 Cameras: Labor Payments 20 Cameras: Apertures Payments 10 Helicopters: Sales Revenue 30 Helicopters: Labor Payments 10 Helicopters: Jerrycans Payments 20 In this case, the rental rate to apertures would change by _______ % and the rental rate to jerrycans would change by ______ %. As a result of these changes: A. Owners of apertures are made worse off, and owners of jerrycans are made better off…
- Suppose two economies Home (H) and Foreign (F) produce two goods, bread and wine, with only one production factor: labour. Production technology, expressed as marginal product of labour (MPL), is given in the following table: Technologies expressed as MPL Bread Wine Home 1/6 1/12 Foreign 1/4 1/2 Suppose that Home has 2400 units of labour and Foreign has 1800 units of labour. a Derive the Production Possibilities Frontier (PPF) and the Consumption Possibility Frontier (CPF) for Home and Foreign, with bread on the horizontal axis and wine on the vertical axis. What is the autarky equilibrium price of bred relative to wine in each country? b. What country has the absolute advantage in producing each good? What country has the comparative advantage in producing each good? Briefly explain the difference between these two concepts. Suppose both countries are now free to trade. The world relative price of bread is 1. c.) What is the pattern of specialisation and trade? Briefly…1. There are two countries, NZ and AUS, which use the same technology for production of food and cloth. The labour (L) and capital (K) endowments areL=100andk=60forNZ,and L=50andk-20forAUS. Theinputs used in production in NZ and in AUS are given in the following table: NZ AUS Labour Capital Labour Capital Food aLF =4 akF=3a-LF =6 8-KF=2 Cloth alc =6 axc=5 a-Lc =8 a-xc=4 Which good is capital-intensive in NZ? In AUS? Which good is labour-intensive in NZ? In AUS? Which country is labour-abundant? Which is capital-abundant? Draw the PPF curves for the two countries. Which country has a higher relative supply of cloth if the countries face the same relative price of cloth? What is the level of free trade relative price of cloth compared to the two autarky relative prices of cloth? Which country exports what? Relate the answer to the Heckscher- Ohlin Theorem. Illustrate the imports and exports. Show using indifference curves that both countries gain from trade.Assume that Sweden and Norway have the following set of production factors (see table below). Suppose further that for the production of one unit of steel it takes two machines and 8 workers and for one unit of bread it takes one machine and 8 workers. Sweden Norway Capital Labour 40 machines 10 machines 200 workers 60 workers a) Which commodity, bread or steel, is relatively capital-intensive and which is relatively labor-intensive? Show how to decide this. b) Which country will export bread and steel respectively? Why? Show how to determine this in a figure or with equations. c) Explain what happens to the return on capital and labor in Sweden and Norway after trade has begun between the countries.