ECO304: International Trade Tutorial 4 2021/2022 Semester 2
Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit
ECO304: International Trade
Tutorial 4
2021/2022 Semester 2
SECTION A
Please give a short answer. Indicate whether the statement is true or false and give an explanation for your answer. Answer all questions.
A1. Assuming that labour is mobile, wages always must be equal across the sectors in the specific- factors model. True or False? Explain.
A2. When labour shifts from agriculture to manufacturing, the marginal product of capital falls, while the marginal product of land increases. True or False? Explain.
A3. When there are diminishing marginal returns to factors of production, the PPF is a straight line. True or False? Explain.
SECTION B
B1: Use the following information to answer the questions below:
Manufacturing:
Sales revenue = PM · QM = 150
Payments to labor = W · LM = 100
Payments to capital = RK · K = 50
Agriculture:
Sales revenue = PA · QA = 150
Payments to labor = W · LA = 50
Payments to land = RT · T = 100
Holding the price of manufacturing constant, suppose the increase in the price of agriculture is 20% and the increase in the wage is 10%.
a) Determine the impact of the increase in the price of agriculture on the rental on land and the rental on capital.
b) Explain what has happened to the real rental on land and the real rental on capital.
B2: Use the following information to answer the questions below:
Computers:
Sales revenue = PC · QC = 150
Payments to labor = W · LC = 75
Payments to capital = RK · K = 75
Barley:
Sales revenue = PB · QB = 150
Payments to labor = W · LB = 70
Payments to land = RT · T = 80
Holding the price of computers constant, suppose the percentage increase in the price of barley is 10% and the percentage increase in wage is 5%.
a) Determine the impact of the increase in the price of barley on the rentals on land.
b) Determine the impact of the increase in the price of barley on the rentals on capital.
c) Determine the impact of the increase in the price on the welfare of labour.
d) Summarize your finding using the notational format.
e) If, instead of the situation given above, the price of computers was to fall, would landowners or capital owners be better off? Explain. How would the decrease in the price of computers affect labour? Explain.
2022-05-27