ECO304: International Trade Tutorial 6
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ECO304: International Trade
Tutorial 6
Question 1:
Suppose Indonesia and Canada trade in sarongs and beer. Use the following data for Canada to answer the questions:
Sarongs:
= 
∗ 
= $80
= 
∗ 
= $40
= 
∗ 
= $40
∆
Beer:
= 
∗ 
= $80
= 
∗ 
= $30
= 
∗ 
= $50
ℎ
= 
= 0%
a. Which industry is labor-intensive?
b. Give the percentage change in the rental on capital.
c. Compare the magnitude of the percentage change in the rental on capital in part (b) with that of labor.
d. Identify the factor that benefits from trade in real terms. Which factor gains? Which factor loses?
Question 2:
Suppose wheat production is labor-intensive, and television production is capital-intensive.
a. Draw a diagram to show the economy-wide relative demand for labor.
b. Suppose there is an increase in the relative price of televisions. How does the economy-wide relative demand curve for labor shift?
c. What is the effect of a higher relative price of televisions on Wage/Rental? Show it in the diagram.
d. What is the effect of a higher relative price of televisions on Labor/Capital in both industries? Show it in the diagram.
e. What is the effect on real rental?
f. What is the effect on real wage?
2022-06-01