Quiz1-a - International Economics ECON-UA 238.004 New York...

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International Economics ECON-UA 238.004 New York University, Fall 2011 by Arhan Ertan Quiz1 Answers 1. Suppose a large open economy is producing cloth and food using labor and land, where production of food is land intensive and the production of cloth is labor intensive. Because of a sudden inward migration, this country’s labor supply increases significantly. i. Determine the effect of this event on: a. the allocation of land and labor across those two sectors (keeping initially the relative price constant), b. the price of cloth relative to price of food, c. the wage-rental ratio, d. the land-labor ratio on both sectors. ii. Which one of these effects summarizes the Rybczynski effect (biased effect of changes in resources on production possibilities and equilibrium production levels) and which one the Stolper-Samuelson effect ? Explain. Hint: For part -a, use the box-diagram with two origins (the lower-left origin for the production of cloth and the upper-right origin for the food production) and with quantity of land on the vertical axis and quantity of labor on the horizontal axis. For part -b, use the world relative supply and relative demand diagram. And for parts -c and –d, use the diagram which we use to
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Quiz1-a - International Economics ECON-UA 238.004 New York...

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