After trade liberalization the short run impact on

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Macroeconomics: Principles & Policy
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Chapter 18 / Exercise 2
Macroeconomics: Principles & Policy
Baumol/Blinder
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9.After trade liberalization, the short-run impact on the specific factor that is relatively scarce is: a.No change in its real income. b.A decrease in its real income. c.An increase in its real income. d.Indeterminate change in its real income without more information.
10.Assume that strawberry production requires the specific factor of land, that tractor production requires the specific factor of capital, and that labor is a mobile factor that can be used in either industry. If the U.S. is capital abundant while Mexico is land abundant, then according to the specific factors model, the opening of international trade between the U.S. and Mexico would, in the short-run:
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Macroeconomics: Principles & Policy
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Chapter 18 / Exercise 2
Macroeconomics: Principles & Policy
Baumol/Blinder
Expert Verified
Exam #1 (Spring 2017) 4/15 A.Analytical Questions (70 points). Answer BOTHof the following questions based on the standard models of analysis developed in class. The information in the various parts of the questions is sequential and cumulative.1.The Classic Ricardian Model.Germany and Luxembourg are neighboring countries in Europe. Germany has one of the largest economies in the world while Luxembourg has one of the smallest. Germany’s comparative advantage is in the production of machinery while Luxembourg’s comparative advantage is in the production of cheese. a.Use a classic Ricardian model diagram with country indifference curves for each country to clearly and accurately showeach country’s autarky production and consumption choices and use a relative supply and relative demand diagram (on the next page) to clearly and accurately showtheir relative autarky prices for machinery. These diagrams should be drawn in BLACK. QCSC1DC0= SC0DC1SM1DM0= SM0DM1QM“A”“C”“B” “C” “B”“A” QCDC1DC0= SC0SC1DM1DM0 = SM0SM1 QMGermanyLuxembourgCIC1 CIC0CIC1 CIC0
Exam #1 (Spring 2017) 5/15 (QM/QC)L(QM/QC)GQM/QCPM/PC(PM/PC)L(PM/PC)GAutarky Relative Supply and DemandRDG= RDLRSGRSL
Exam #1 (Spring 2017) 6/15 b.Provide an economic explanationof what you have shown in your diagrams above.

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