Question: Need help with this question, this was all given information. It is supposed to be completed using Specific Factor Model Question 3. Suppose there is
Need help with this question, this was all given information. It is supposed to be completed using Specific Factor Model

Question 3. Suppose there is an economy, Canada, that produces timber and cars. There are three factors of production: land, factories, and labor. Timber is produced with labor and land, cars are produced with factories and labor. Labor is perfectly mobile between the timber and cars industries. For these questions, illustrate your answers with appropriate graphs. a. Suppose that, before trade, the price of timber is $40 and the wage per worker is $120. What is the marginal product of labor in the timber industry? (5 points) b. Continue assuming that the wage is $120 per worker, and the price of timber is $40. Suppose further that the price of cars is $50, and the marginal product of labor in the cars sector is 1 unit per worker. What will happen to the distribution of labor between the two sectors? (5 points) c. In equilibrium, with diminishing marginal products, what does the slope of the PPF is equal? (5 points) Now, imagine that Canada opens to trade with Mexico, which has comparative advantage in producing cars compared to Canada. d. What is the pattern of trade? Are there gains from trade? What happens to the MPL in Canada in timber? What happens to the MPL in Canada in cars? What happens to the real wages of workers in Canada? (5 points) e. What happens to the marginal product of factories and of land in Canada? What happens to the owners of these factors? (5 points)
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