2 Consider a Specific Factors model with two countries, Home H and Foreign F, three factors of production, labour L, capital K and land T, and two goods, cars c and bread b. The production functions are the same in both countries and given by: 1 Fe(Ke, Le) = K L} and Fr(Lb, Tv) = L}{T}³ Denote the factor prices by r for capital, w for labour and q for land. The price for cars is pc, the price for bread pb. Home's factor endowment is given by KH = 8, LH = 1 and TH = 1, Foreign's factor endowment by KF = 1, LF = 1 and TF = 1. Suppose that relative demand for the goods is the same in both countries: Normalise bread price ie P₁ = PH= P=1 H ¹/x = pt/pc and x/x = Pb/pc. a) Derive autarky equilibrium good and factor prices in both Home and foreign and show that PH

2 Consider a Specific Factors model with two countries, Home H and Foreign F, three factors of production, labour L, capital K and land T, and two goods, cars c and bread b. The production functions are the same in both countries and given by: 1 Fe(Ke, Le) = K L} and Fr(Lb, Tv) = L}{T}³ Denote the factor prices by r for capital, w for labour and q for land. The price for cars is pc, the price for bread pb. Home's factor endowment is given by KH = 8, LH = 1 and TH = 1, Foreign's factor endowment by KF = 1, LF = 1 and TF = 1. Suppose that relative demand for the goods is the same in both countries: Normalise bread price ie P₁ = PH= P=1 H ¹/x = pt/pc and x/x = Pb/pc. a) Derive autarky equilibrium good and factor prices in both Home and foreign and show that PH

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter13: General Equilibrium And Welfare

Section: Chapter Questions

Problem 13.3P

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Assume that countries A and B operating in the immobile factor model have identical labor endowments. Both produce beer and pizzas. Country A has an absolute advantage in the production of beer, while Country B has an absolute advantage in the production of pizzas. Which of the following statements will be true? O Labor productivity of beer workers is higher in Country B. O Unit labor requirement for pizza production is lower in Country A. O Autarky price of beer will be higher in Country B. O Autarky price of pizza will be higher in Country B. O Country B produces more beer than Country A.
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