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Problem Set 4 - Cornell University Gregory Besharov...

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Cornell University Gregory Besharov Economics 3610: Problem Set 4 Due September 29, 2008 1. True/False/Explain. For each of the following statements, say whether the statement is true or false and explain your answer. Please limit your answer to two sentences. a. The specific factor model explains winners and losers from trade by showing how wages can differ across sectors within a country in a trade equilibrium. 2. Suppose the following is true. Manufacturing. Sales rev. = P M Q M = 150. Payments to labor= WL M = 100. Payments to capital R K K = 50 Agriculture. Sales revenue. P A Q A = 150. Payments to labor= WL A = 50. Payments to land = R T T =100. Holding the price of manufacturing constant, suppose the increase in the price of agriculture is 10% and the increase in the wage is 5%. a. Determine the impact of the increase in the price of agriculture on the rental on land and the rental on capital. b. Explain what has happened to the real rental on land and the real rental on capital.
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