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econ353-09fall-ps5answers - K-intensive commodity by...

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METU/FEAS 16.12.09 Econ 353 Hakan Ercan Tuna GONULDAS Gorkem KARABAYIR PROBLEM SET 5- ANSWERS PART A 1) C 2) D 3) B 4) A,C,D,F,H,I,J,L 5) a) TRUE Since (w/r) 1 < (w/r) 2 , Country 1 is labor-abundant and Country 2 is capital abundant. Hence, since (Px/Py) 1 > (Px/Py) 2 , x is capital-intensive good. b) TRUE Since Y is labor-intensive good. c) FALSE Country 1 is labor-abundant 6) i)d ii)c 7 A 8 C 9 B 10 A 11 C 12 B 13 A 14 C PART B 1) T 2) T 3) T 4) F 5) T 6) T PART C 1) After opening of trade, the capital abundant country will increase the production of
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Unformatted text preview: K-intensive commodity by shifting resources from L-intensive commodity to K-intensive commodity. So there will be a(n) decrease (increase/decrease) in the demand for labor and increase (increase/decrease) in the demand for capital. With fixed factor endowments, the price of labor will decrease and the price of capital will increase . The opposite will occur in the labor abundant country. PART D 1,2,3 at the jpg 1 4) a) TRUE b) FALSE c) FALSE 2...
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