3610 PS4 - Cornell University Fall 2009 Economics 3610:...

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Cornell University Fall 2009 Economics 3610: Problem Set 4 Due 10/26/09 1. True/False/Explain. For each of the following statements, say whether the statement is true or false and explain your answer. Please limit your answer to two sentences. a. Based on the supply and demand analysis in which workers migrate from Foreign to Home, there are only gains from immigration if foreign workers are counted as part of the Foreign country. b. In a model of oligopoly with homogenous goods, if one firm’s price is lower than the prices of all other firms, then only that firm will sell the good. c. In the monopolistic completion model, the more firms there are in a long-run equilibrium, the higher the price will be. 2. Question 3 of Chapter 6 of Text Starting from the long-run equilibrium without trade in the monopolistic competition model, as illustrated in Figure 6-5, consider what happens when the Home country begins trading with two other identical countries. Because the countries are all the same, the number of consumers in the world is three times larger than in a single country, and the number of firms in the world is three times larger than in a single country. a. Compared with the no-trade equilibrium, how much does industry demand D increase? How much does the number of firms (or product varieties) increase? Therefore, does the demand curve D/N A still apply after the opening of trade? Explain why or why not. b. Does the d 1 curve shift or pivot due to the opening of trade? Explain why or why not. c. Compare your answer to (b) with the case in which Home trades with only one other identical country. Specifically, compare the elasticity of the demand curve d 1 in the two cases. d. Illustrate the long-run equilibrium with trade and compare it with the long-run equilibrium
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3610 PS4 - Cornell University Fall 2009 Economics 3610:...

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