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ps2ansB - ECONOMICS 450: INTERNATIONAL TRADE FALL 2011 MARK...

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z ECONOMICS 450: INTERNATIONAL TRADE FALL 2011 MARK MOORE PROBLEM SET 2: SOLUTIONS (PART B) A. 1. When the home country gets bigger, the trade balance line shifts down. The home relative wage falls, and the home country produces a wider range of goods. This is a full employment model. When the home labor force gets bigger, the relative wage of home workers must fall to maintain full employment. The fall in the relative wage allows home workers to produce a wider range of goods. Home welfare falls, since the home real wage falls and there has been no change in technology or tastes. 2. In this case the trade balance line shifts up. World demand shifts toward home goods, and as a result, world labor demand shifts toward home labor. The home relative wage increases, and the range of goods produced by the home country falls. Strictly speaking, we can say anything about the change in welfare in this case because tastes have changed. 3.
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This note was uploaded on 11/21/2011 for the course ECON 404 taught by Professor Carrillo during the Spring '11 term at USC.

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ps2ansB - ECONOMICS 450: INTERNATIONAL TRADE FALL 2011 MARK...

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