answer2 - Part I: Chapter 4 (6th edition) , Problem 4, 5 4....

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Chapter 4 (6th edition) , Problem 4, 5 4. In the Ricardian model, labor gains from trade through an increase in its purchasing power. This result does not support labor union demands for limits on imports from less affluent countries. Labor may gain or lose from trade in the context of the Immobile Factors model. Purchasing power in terms of one good will rise, but in terms of the other good it will decline. The Heckscher-Ohlin model directly addresses distribution by considering the effects of trade on the owners of factors of production. In the context of this model, unskilled U.S. labor loses from trade since this group represents the relatively scarce factors in this country. The results from the Heckscher-Ohlin model support labor union demands for import limits. 5. Conditions necessary for factor price equalization include both countries (or regions) produce both goods, both countries have the same technology of production, and the absence of barriers to trade. The difference between wages different regions of the United States may reflect all of these reasons; however, the barriers to trade are purely "natural" barriers due to transportation costs. U.S. trade with Mexico, by contrast, is also subject to legal limits; together with cultural differences that inhibit the flow of technology, this may explain why the difference in wage rates is so much larger. Chapter 6 (6th edition) , Problem 7 7. a. Suppose two countries that can produce a good are subject to forward-falling supply curves and are identical countries with identical curves. If one country starts out as a producer of a good, i.e. it has a head start even as a matter of historical accident, then all production will occur in that particular country and it will export to the rest of the world. b. Consumers in both countries will pay a lower price for this good when external economies are maximized through trade and all production is located in a single market. In the present example, no single country has a natural cost advantage or is worse off than it would be under autarky. Part II: 1. In the 2-factor, 2 good Heckscher-Ohlin model, an influx of workers from across the border would (a) move the point of production along the production possibility curve. (b) shift the production possibility curve outward, and increase the production of both goods. (c) shift the production possibility curve outward and decrease the production of the labor-intensive product. (d) shift the production possibility curve outward and decrease the production of the capital- intensive product. (e) None of the above. Answer: D 2. In the 2-factor, 2 good Heckscher-Ohlin model, a change from autarky (no trade) to trade will benefit the owners of (a) capital. (b) the relatively abundant factor of production.
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This note was uploaded on 08/11/2011 for the course ECON 103 taught by Professor Larrygolb during the Spring '09 term at SUNY Canton.

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answer2 - Part I: Chapter 4 (6th edition) , Problem 4, 5 4....

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