Econ International Trade

Econ 334 – International Trade

Prof. Sanchez

21 March 2012

Chapter 5 Homework

3.

Graph below. In the shoe industry, labor has increased but by less than the total new amount of labor brought into the country via immigration. Also in the shoe industry, capital has increased slightly. In the computer industry, capital has decreased slightly, and to keep the labor-to-capital ratio the same, it can be assumed that the amount of labor in the computer industry has decreased slightly as well. Since the amount of labor and capital went up in the shoe industry, its output has increased and since the amount of labor and capital went down in the computer industry, its output has decreased.

4.

a.

Since there is a decrease in the amount of capital in the agriculture sector due to the loss of arable land, the marginal product of labor in that sector shifts down. Graph below.

b.

Due to the loss of arable land, the quantity of labor in the agriculture industry decreases and the quantity of labor in the manufacturing sector increases. Additionally, the equilibrium wage decreases.

c.

Since the capital stock has decreased, the rentals on both capital and land increase.

d.

The effect of this policy will increase the equilibrium wage and the rentals will decrease. Graph below.

6.

a.

In the shoe industry, labor is 66.6 and capital is 33.3. In the computer industry, labor is 33.3 and capital is 66.6. (units).

b.

With the increase in total labor to 125 due to immigration, the new labor in the shoe industry is 100 units, and the capital is 50 units, and in the computer industry the new labor is 25 units and the capital is 50 units.

c.

With the increase in capital to 125 units, the amount of labor in the shoe industry decreases to 50 units and the amount of capital in the shoe industry decreases to 25 units. In the computer industry the amount of labor...