191hw1-09

191hw1-09 - Econ 191 Spring 2009 Francis Lui Problem Set 1...

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1 Econ 191 Spring 2009 Francis Lui Problem Set 1 Due: February 24, 2009, 1:20 pm SHARP. Your answers should be concise and to the point. Draw diagrams to illustrate your arguments whenever necessary . 1) Suppose that there are two countries, the rich and the poor. You may assume that labor is cheap in the poor country where there is abundant labor, but labor is more expensive in the rich country. Investors from the rich are interested in setting up companies in the poor country so that they can take advantage of the cheap labor there, and so capital flows from the rich to the poor. Use simple supply and demand analysis to answer the following questions. What will happen to the wage rate in the poor country after the capital inflow has occurred? What will happen to the wage rate in the rich country? What will happen to the return to capital for the domestic investors in the poor country? What will happen to the return to capital for the domestic investors in the rich country? What will happen to income inequality in the
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This note was uploaded on 10/11/2009 for the course ECON 191 taught by Professor Chen during the Spring '08 term at HKUST.

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191hw1-09 - Econ 191 Spring 2009 Francis Lui Problem Set 1...

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