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# 1 in the specific factors model if both countries

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Unformatted text preview: n the specific factors model if both countries have identical endowments of all three factors as well as identical preferences can trade be mutually beneficial? 2. In the specific factors model if the price of Agriculture increases as a result of trade, it is possible for labor to gain more that the owners of land? Specific Factors Question: 1. In the diagram below suppose that instead of having a rise in the relative price of manufactures, there is a fall in that relative price. a. Starting at the autarky point A in the above figure, show what would happen to production and consumption. b. Which good is exported and which is imported? c. Examine the real returns to each factor and explain why the overall gains from trade are still positive. Specific Factor Returns: Numerical Example 2. Using the following information to answer the question below using the cost share approach. Computers: Sales revenue = PC*QC = 150 Payments to labor = W*LC = 75 Payments to capital = RK*K = 75 Barley: Sales revenue = PB*QB = 150 Payments to labor = W*LB = 70 Payments to capital = RT*K = 80 Holding the price of computers constant, suppose the percentage increase in the price of barley is 10% and the percentage increase in the wage is 5% after trade. a. Determine the impact of the increase in the price of barley on the rental rate of land. b. Determine the impact of the increase in the price of barley on the rental rate of capital. c. Determine the impact of the increase in the price on the welfare of labor. Application: Sweatshops and Child Labor I will ask 2 questions regarding sweatshops and child labor, so make sure you understand the key points. Including, how these concepts relate to our models in class, what Edmunds found in Vietnam, and what would have to happen for change....
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