Study - Midterm 2

# Study - Midterm 2 - 10 Suppose good x is capital-intensive...

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10. Suppose good x is capital-intensive relative to good y. Country A is capital- abundant relative to Country B. According to the Stolper-Samuelson theorem, when country B moves from autarky to free trade a. labor benefits b. capital owners’ benefit c. the effect on labor is ambiguous d. free trade is optimal, therefore both labor and capital owners benefit 15. The next three questions are based on the following table. Consider a HOS model of trade where two countries (A and B) are in free trade equilibrium. Two goods (x and y) are produced using two inputs (labor and capital). Labor and capital are perfectly mobile across industries. Good x is labor- intensive. You have the following information: Country A Country B Autarky Price: x 3 ? Autarky Price: y 1 1 Free Trade Price: x 2 ? Free Trade Price: y 1 1 Free Trade wages: 1.5 ? Free Trade rental rate: 0.5 ? When the countries move from autarky to free trade, labor in Country B a. experiences an increase in their real income b. experiences a decrease in their real income c. experiences an increase in their nominal income and a decrease in their real income d. experiences a decrease in their nominal income and an increase in their real income e. None of the above 16. The wage-rental ratio (in free trade) in Country B equals a. 1.5

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b. 3 c. 2 d. 1 e. None of the above 17. Given the information in the above table, Country A a. is capital-abundant b. is labor-abundant c. has better technology d. completely specializes in the production of its comparative advantage industry e. None of the above 18. Assume that Colombia is capital abundant, Brazil is labor abundant, the Calculator industry is capital intensive, and the Airplane industry is labor intensive. Labor is mobile between the two industries within each country, but capital is immobile in the short run. (In the long run capital is also mobile.) Assume that you live in Colombia. What is the effect of moving from autarky to free trade (in the short run) on capital-owners in the Calculator industry? a. the real return increases b. the real return decreases c. there is an ambiguous effect d. by the Rybcznski theorem, there is no effect e. None of the above. 19. Continue to assume the information given in question 18. Assume that you live in Colombia. What is the effect of moving from autarky to free trade (in the short run) on capital-owners in the Airplane industry?
a. the real return increases b. the real return decreases c. there is an ambiguous effect d. by the Rybcznski theorem, there is no effect e. None of the above. 20.

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## This note was uploaded on 04/03/2008 for the course ECON 300 taught by Professor Gang during the Spring '06 term at Rutgers.

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Study - Midterm 2 - 10 Suppose good x is capital-intensive...

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