Cornell University Fall 2009 Economics 3610: Problem Set 3 Due 10/2/09 1. Effect of Trade on High-Skilled and Low-Skilled WorkersThere 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. 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. 2. PlagueSuppose 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,
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