Assume the Heckscher-Ohlin model with two factors of production, labor and capital, and two goods, shoes and computers. Wages comprise 50% of the production costs of shoes (sLS = .5) and 25% of the production costs of computers (sLC = .25). Assume that trade causes the relative price of computers to rise by 10% and causes rental payments to capital (R) to rise by 20%. a. Calculate the effect that trade will have on wages. b. Use your answer in part a to show the effect that trade will have on the price of shoes. Show your work.
Assume the Heckscher-Ohlin model with two factors of production, labor and capital, and two goods, shoes and computers. Wages comprise 50% of the production costs of shoes (sLS = .5) and 25% of the production costs of computers (sLC = .25). Assume that trade causes the relative price of computers to rise by 10% and causes rental payments to capital (R) to rise by 20%. a. Calculate the effect that trade will have on wages. b. Use your answer in part a to show the effect that trade will have on the price of shoes. Show your work.
Micro Economics For Today
10th Edition
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Tucker, Irvin B.
Chapter2: Productions Possibilities, Opportunity Costs, And Economic Growth
Section: Chapter Questions
Problem 10SQP
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4. Assume the Heckscher-Ohlin model with two factors of production, labor and capital, and two goods, shoes and computers. Wages comprise 50% of the production costs of shoes (sLS = .5) and 25% of the production costs of computers (sLC = .25). Assume that trade causes the relative price of computers to rise by 10% and causes rental payments to capital (R) to rise by 20%.
a. Calculate the effect that trade will have on wages.
b. Use your answer in part a to show the effect that trade will have on the price of shoes. Show your work.
Note:-
- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism.
- Answer completely.
- You will get up vote for sure.
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