Problem Set 5 - Cornell University Gregory Besharov...

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Cornell University Gregory Besharov Economics 3610: Problem Set 5 Due October 8, 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. Because shoes are labor-intensive in the Heckscher-Ohlin model, in the absence of trade, more workers will be employed making shoes than computers. 2. Suppose when Russia opens to trade, it imports automobiles, a capital-intensive good. a. According to the Heckscher-Ohlin theorem, is Russia capital abundant or labor abundant? Briefly explain. b. What is the impact of opening trade on the real wage in Russia? c. What is the impact of opening trade on the real rental on capital? d. Which group (capital owners or labor) might you expect to support policies to limit free trade? Briefly explain. 3. Using a diagram similar to 4-8 in the text, show the effect of a decrease in the relative price of computers in Foreign. What happens to the wage relative to the rental? Is there an increase in the labor-capital ratio in
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