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4431ps2 - ECON 4431V International Trade Spring 2005...

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ECON 4431V: International Trade Spring 2005 Problem Set 2 Due March 9th, Wednesday NOTE: All assignments must be typed. Graphs and calculations may be handwritten. No late homeworks will be accepted. Exercise 1 (10 points) Specific Factors Model Use the specification given in Exercise 4 in Problem Set 1. Suppose now that there’s been an inflow of immigrants in the economy and the total labor supply increases from 100 units to 120 units. The supply of capital has not changed. (i) Given the information given, graph the production possibility frontier. (You will not be able to draw the whole PPF with the information given so just show the parts where you can draw.) (ii) Re-do part ( iv ) of Exercise 4 in Problem Set 1. That is, take the relative price as one ( P 2 P 1 = 1) and show graphically the new equilibrium and calculate the new wage rate, new allocation of labor and output in each sector. Exercise 2 (20 points) Specific Factors Model Consider a world with two countries and two produced goods. The production technologies in the two countries are identical: y i 1 = ( l i 1 ) 1 2 ( k i 1 ) 1 2 i = 1 , 2 y i 2 = ( l i 2 ) 1 2 ( t i 2 ) 1 2 i = 1 , 2 Here, the subscripts denote different goods and the superscripts denote different countries. Good 1 uses labor and capital as its inputs while good 2 uses labor and land as its inputs.

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