3610 PS3 solution

3610 PS3 solution - Cornell University Fall 2009 Economics...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Cornell University Fall 2009 Economics 3610: Problem Set 3 Solutions 1. Effect of Trade on High-Skilled and Low-Skilled Workers There are two countries, Home and Foreign. Home is relatively abundant in high-skilled labor, and Foreign is relatively abundant in low-skilled labor. a. Using the specific factors model, where high-skilled labor is specific to manufacturing and low-skilled labor is specific to agriculture, determine the effect of trade on the real wages of high- skilled and low-skilled labor at Home. Assume that the third input is capital. The real wage in the export industry increases, as is always the case for the return on the abundant factor with trade. Since Home is abundant in high-skilled labor, the wages of the high- skilled workers will increase. b. Using the Heckscher-Ohlin model, where high-skilled labor is used intensively in computers and low-skilled labor is used intensively in shoes, determine the effect of trade on the real wages of both types of labor at Home. In the Heckscher-Ohlin model, the price of the relatively abundant factor increases with trade and that of the scarce one decreases. 2. Plague Suppose that because of an outbreak of the plague, the workforce of a country is reduced. Analyze the effects using the specific factors model, where land is specific to agriculture and capital is specific to manufacturing. What happens to 1) the output of each industry, 2) the wage, and the rentals on capital and land?
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
The diagram depicts a decrease in population in the specific factors model. The origin for agriculture shifts inward by the population loss, and the curve for the marginal product in
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/10/2011 for the course BTRY 3010 at Cornell.

Page1 / 4

3610 PS3 solution - Cornell University Fall 2009 Economics...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online