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hw3_solutions - of pollution is positive The problem here...

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Econ 4550/6550 International Trade Assignment 3/Answer Key 1) C 2) E 3) A 4) A 5) A 6) If in fact national tastes were strongly biased in favor of the product in which the country enjoyed a comparative advantage, then we would expect a rejection of the Heckscher-Ohlin Theorem in actual trade data. The engine driving the H-O model is that a country should be expected to have a relatively low cost of producing the good in which it has a comparative advantage. However, the respective demand forces would tend to raise the price of this good, so that the expected pattern would not generally be observed (However, if the tastes were biased in favor of the imported good, then the predictions of the Heckscher-Ohlin Theorem would be expected to be generally observed). 7) This statement is badly crafted. It seems to imply that pollution per se is a proper factor of production. That is, just as if you add a worker, you get additional product, so the marginal product
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Unformatted text preview: of pollution is positive. The problem here is that pollution is not really a factor of production, but rather an externality , or a by-product of the production process. In such a case, the statement in the question is false. 8) You will find Sri-Lanka to the left of Australia on the K/L axis. Australia has a higher relative wage. Food is the land intensive product. The relative price Pc/Pf is found between the two autarkic prices. The post trade relative wage is between the two autarkic ones on the vertical axis. 9) Sri Lanka will export cloth. The relative (and real) incomes of workers will fall in Australia as a result of trade. Land owners in Australia should lobby in favor of trade. They would also lobby for free labor mobility (of workers into Australia), since the marginal product of labor is high, the owners of land have much (Ricardian) rents to gain from an inflow of workers....
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