Problem Set _2b - Econ 181: International Trade Spring 2009...

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Econ 181: International Trade Spring 2009 Problem Set #2b (Due Tuesday, February 24, 2009) 1. Article Analysis—The Heckscher-Ohlin Model: Read this article and answer the following questions. Tyler Cowen, “Why is Income Inequality in America so Pronounced? Consider Education ”. The New York Times, May 17, 2007. The URL is: = a. The article states, "starting about 1950, the relative returns for schooling rose, and they skyrocketed after 1980. The reason is supply and demand….Those in need of skilled labor are bidding for a relatively stagnant supply [of educated workers] and so must pay more." U.S. trade as a fraction of the economy has also grown somewhat since about 1950. Compare the statement from the article with the prediction about the distribution of income from Heckscher-Ohlin model. b. What is wrong with claiming that changes in the distribution of income are associated with trade instead of the technological changes that the article discusses? c. If technological changes are driving the income inequality within the U.S., what predictions can we make about income inequality within other countries that the U.S. trades with? 2. Model Analysis—The Heckscher-Ohlin Model . Assume that the major difference between the U.S. and Mexico is that the U.S. has a relative abundance of land while Mexico has a relative abundance of labor. Wheat growing involves large amounts of land combined with relatively little labor (mostly associated with planting and harvesting) while melons are produced intensively on small farms with substantial amounts of labor for
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Problem Set _2b - Econ 181: International Trade Spring 2009...

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