PSet 2 Solutions

PSet 2 Solutions - PS2 Solutions 1. Primary products...

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PS2 Solutions 1. Primary products processing makes intensive use of both skill (human capital) and land (natural resources), relative to labor. Latin America is moderately endowed with skill and land while South Asia is poorly endowed with both. Thus the share of processed primary products in total exports is higher in Latin America than it is in South Asia. Sub-Saharan Africa has low skill per worker but high land per worker, resulting in a high ratio of land to skill, and this causes it to have a processed) primary products. It comes as no surprise then sub-Saharan Africa has the highest share of unprocessed primary products in total exports. 2. Market failures are situations in which market equilibria fail to yield Pareto optimal outcomes; for example, the ine¢ cient private provision of public goods is a type of market failure. The hands-on knowledge an infant industry is a public good. It is unpatentable and subjected to incentive to enjoy the spillovers of the knowledge provided by others while providing it insu¢ ciently itself - a typical case of the free-rider problem. The learning by &rms is a by-product of production so the appropriate gov- period. 3. Mexico and Taiwan followed two di/erent development paths after they trade protection from its government, Mexico was able to prolong the im- port substitution phase by producing consumer durables for its domestic market. As a result, its manufactured goods were not cost competitive in international markets. When Mexico wanted to export industrial manu- factured goods, it could only do so by export subsidization.
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This note was uploaded on 01/20/2012 for the course ECON 116 taught by Professor Hoshi during the Spring '08 term at UCSD.

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PSet 2 Solutions - PS2 Solutions 1. Primary products...

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