Problem 1•Suppose that factor-price equalization prevails in the world but a large migration takes place from country A to country B (due to some political disturbances). Describe the adjustments that will occur if capital is also mobile internationally. What will happen if it is immobile?
Problem 1 Answer•The migration in labor from country A to B will make country B more labor abundant, and A less labor abundant. Therefore, the wage-rental ratio will fall in B and rise in A. If capital is internationally mobile, then capital also moves abroad with labor until the wage-rental ratio is equal across countries. If capitalis not internationally mobile, then country B will produce more labor-intensive goods and country A will produce more capital-intensive goods. Country A will export some of the capital-intensive goods to country B in return for their excess labor-intensive goods.
has intentionally blurred sections.
Sign up to view the full version.