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During 1979 to 1990 wages of skilled workers and

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39. During 1979 to 1990, wages of skilled workers and their share of total employment in the U.S. workforce increased. The only logical explanation would be: A) that their wages fell in real terms. B) that there was a decrease in demand for skilled workers. C) that due to productivity or demand for products, there was a relative increase in demand for skilled workers. D) that minimum wage increases caused the demand for workers to shift toward the skilled. Page 8
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40. Among the activities in the value chain, assembly is intensive in _________ labor and R&D is intensive in__________ labor. Page 9
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Answer Key Page 10
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Solution to Questions 4, 17 19 Q4. US trade balance with China is US exports to China minus US imports from China. Note that $300 is the local retail price, not the import price of an iPhone. The import price is $150. As a result of the trade, US trade balance with China is reduced by $150. Q17 . Since Home produces 0.5 ton of corn or 1 ton of wheat with a day of labor, producing 1 more ton of corn requires 2 more days of labor and thus production of wheat must be reduced by 2 tons. So Home’s price of corn in autarky is 2 tons of wheat per ton of corn. Q18 19 Since Home trades Foreign at a 1 to 1 ratio of corn for wheat, the after trade price of corn is lower than the pre trade price of corn in Home ( see Q17 ). This implies that Home must have the comparative disadvantage in corn and comparative advantage in wheat ; and Home must import corn and export wheat after trade. Now let us figure out Home’s daily production of wheat after trade. Since without trade, Home’s daily production is 20 tons of wheat and 10 tons of corn, the number of labor is 20/1 + 10/0.5 = 40. Note that since Home has the comparative advantage in wheat, after trade Home completely specializes in wheat. Thus, Home’s daily production of wheat is 40*1=40 tons. Now let us calculate the volume of trade. Since after trade Home consumes 20 tons of wheat, the volume of exports of wheat is 40 20 = 20 tons. Since after trade 1 ton of wheat can be exchanged for 1 ton of corn, Home can import and consume 20 tons of corn.
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