Ch. 11 Problems

Ch. 11 Problems - Chapter 11 Problems 2, 3 and an...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 11 Problems 2, 3 and an additional
Background image of page 1

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

View Full DocumentRight Arrow Icon
Problem 2 • Suppose a capital-abundant country levies a tariff on its labor-intensive import, in the Heckscher-Ohlin framework. • Show why this must improve workers’ real wage. • What further changes in the country’s real wage would be brought about if foreign countries counter with tariffs of their own on home exportables?
Background image of page 2
Problem 2 Answer • A tariff on labor-intensive imports will increase the price of the country’s labor-intensive products. This will lead to an increase in the wage rate greater than the increase in the price level (by the Stolper-Samuelson theorem). Thus the real wage will increase. • If the foreign country increases tariffs on their imports, then this will reduce the world price of the capital-intensive good, thus increasing the domestic real wage.
Background image of page 3

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

View Full DocumentRight Arrow Icon
Problem 3 • Suppose the home country exports cloth which is produced with capital and labor and imports food which is produced with land and labor, in the Specific Factors framework. Let some of the capital used in the C be provided by foreign investment. If the home country protects its food industry with a tariff, trace through the following scenarios:
Background image of page 4
Problem 3 contd. a.
Background image of page 5

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

View Full DocumentRight Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

This document was uploaded on 02/10/2012.

Page1 / 11

Ch. 11 Problems - Chapter 11 Problems 2, 3 and an...

This preview shows document pages 1 - 6. Sign up to view the full document.

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