Set04-SFGov - Econ 441 Problem Set 4 Alan Deardorff...

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Econ 441 Alan Deardorff Problem Set 4 Specific Factors, Government Policies Page 1 of 2 Problem Set 4 Specific Factors and Government Policies 1. In the Extreme Specific Factors Model, a. What does a country’s excess demand curve look like? b. What determines the relative price at which the excess demand curve crosses the vertical axis? c. Suppose a world of two countries that are trading freely, with the home country importing good X , and exporting good Y to Foreign. Suppose now that Home (only) experiences an improvement in its technology so that the factors employed in its X industry become more productive by, say, 10%. What will this do to i) its excess demand or supply curve, ii) the world equilibrium relative price of X , iii) the real wage of labor in Home’s X industry iv) the real rental price of capital in Foreign’s Y industry? 2. In the (Standard) Specific Factors Model of a small open economy that initially exports good X , analyze the effects on i) outputs of the goods,
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Set04-SFGov - Econ 441 Problem Set 4 Alan Deardorff...

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