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International Economics, EC3024

Tuesday, 06 December 2022

Section B

You MUST answer ONE question.

Question 1:

1.1 Explain the short and long run effects of capital transition in the form of Foreign Direct Investment in manufacturing in a country on the wages of workers, production, nominal and real rentals of capital and land, and the marginal productivities of labour, capital and land in the receiving country.

[20%]

1.2 Discuss four possible characteristics of a receiving country that increases the inflow of Foreign Direct Investment in the form of capital?

[13.3%]

Question 2:

2.1 In the model of trade under monopolistic competition, discuss the short- and long-run monopolistic competition equilibrium with trade, detailing changes in demand, prices,      number of goods and producers, profit, and costs. Compare the no trade and trade equilibria.

[20%]

2.2 Discuss three possible gains and losses of a country in monopolistic competition when starting trade?

[13.3%]

Question 3:

3.1 Given the Specific-Factors model, imagine two countries, Home and Foreign (marked     with *) producing two goods with three production factors: labour (L), capital (K) and land (T). The two goods produced are: Food (A) using Land and Labour, Cars (M) using Capital and   Labour. The relative price for cars is lower in the home country than in the foreign country     before trade.

In which good would home country have a comparative advantage? How would the real        wages for labour, real rental for capital and real rental for land change when home country    starts trading with the foreign country, exporting the good it has a comparative advantage in?

[20%]

3.2 Due to Brexit and other circumstances, demand and prices for goods in the UK have recently changed. Explain what possible effects such changes in demand and prices for

goods can have on the comparative advantages, import and export volume and nominal & real wages in the UK.

[13.3%]