Question # 00758851 Posted By: spqr Updated on: 04/27/2020 01:55 AM Due on: 04/27/2020
Subject Economics Tutorials:
Question

1. Consider a country with SH skilled workers and UH unskilled workers. There are two final goods, indexed by 0 and fi, and the respective production functions are

5O(S, U) = min(S, U},      5fi(S, U) = S ‡ U.

Essentially, workers must work in a team of one skilled worker and one unskilled worker to produce good 0, and they can produce good fi by themselves. Write pc for the price of good w c (0, fi} and write uS and uU for skilled and unskilled wages.

1. Suppose pO/pfi > X. Set up a diagram with the unit-revenue curves for this economy and show the possible factor prices (uS, uU ) implied by this diagram, assuming that both goods are produced.

1. In the context of a, determine output and factor prices when 0 c SH c UH. Do the same for the case SH > UH > 0.

1. Suppose pO/pfi c X. Set up a diagram with the unit-revenue curves for this economy and show what will happen given any factor endowments SH > 0 and UH > 0. What do you know about factor prices in this case?

1. Show the production possibility set for this economy and confirm the conclusions about output you reached in a, b and c.

1. Consider a home country with JH > 0 units of labor and KH > 0 units of capital. There are two consumption goods, indexed by w c (0, fi}. Good w can be produced using a technology defined by the production function

5c(K, J) = ?cK ‡ xcJ,

where K ≤ 0 is capital and J ≤ 0 is labor. Write pO and pfi for the prices of good 0 and good fi, respectively, and v and u for the factor prices of capital and labor. Everyone has the same homothetic preferences with indifference curves that never hit the axes.

1. In a diagram with output of good 0 on the horizontal axis and output of good fi on the vertical axis, describe the production possibility frontier of this economy. Carefully label everything and show how the diagram changes as parameters change from xfi/xO > ?fi/?O to xfi/xO c ?fi/?O (show both diagrams.)

1. What are the possible equilibrium relative prices pO/pfi in each of these two cases? Explain.

1. Show the Lerner diagram for this economy. Describe the cone of diversification. What is the effect of increases in KH or JH on the output of goods 0 and fi, taking the prices pO and pfi as given?

Now suppose there is also a foreign country with consumers who have the same prefer- ences as consumers in the home country. The endowments of capital and labor in the foreign country are KF c (0, KH) and JF = JH, and the technology is the same as in the home country.  For the remainder, consider only the case xfi/xO > ?fi/?O.

1. Show the production possibility frontiers of the two countries in one diagram.

1. Pick some pO/pfi c (?fi/?O, xfi/xO) and use the diagram developed in a to show what the equilibrium looks like if this pO/pfi is the equilibrium price ratio. Who exports what? What do you know about factor prices in the two countries? What happens to pO/pfi in each of the two countries when trade is shut down?  Himt:  first draw budget constraints, not indifference curves¡ then reverse engineer what indifference curves must be like.
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1. ## Solution: Eronomxrs 4438W—Advanred Inte4natxonal T4ade Sp4xns 2020, P4oblem Set 4

Tutorial # 00759209 Posted By: spqr Posted on: 04/27/2020 01:56 AM
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