Question: please answer the question below. all the information is in the question Part I. Heckscher-Ohlin Model and Stolper-Samuelson theorem 1. Suppose that there are drastic

please answer the question below. all the information is in the question

please answer the question below. all the information is in the questionPart I. Heckscher-Ohlin Model and Stolper-Samuelson theorem 1. Suppose that there are

Part I. Heckscher-Ohlin Model and Stolper-Samuelson theorem 1. Suppose that there are drastic technological improvements in shoe production at Home such that shoe factories can operate almost completely with computer-aided machines. Consider the following data for the Home country: Computers: Sales revenue = = 100 Payments to labor = = 50 Payments to capital = = 50 Percentage increase in the price 0% Shoes: Sales revenue = = 100 Payments to labor = = 25 Payments to capital = = 75 Percentage increase in the price 0% a. Which industry is capital-intensive? Explain b. Based on the relative price change, which good does home country export? Explain c. Based on Heckscher-Ohlin theorem, is home country capital-abundant or labor-abundant? Explain. Which factor of production will gains from trade based on Stolper-Samuelson theory? d. Given the percentage changes in output prices above, calculate the percentage change in the rental on capital and percentage change in wage of labor. How does the magnitude of percentage change in rental compare with that of labor? e. Calculate the real rental percentage change and real wage percentage change. Which factor gains in real terms, and which factor loses? Are these results consistent with the Stolper-Samuelson theorem? Part II. The Specific-Factors Model 1. Assume under the Specific-Factors Model, home country export manufacturing goods to foreign country. Use the following information to answer the questions below: Manufacturing: Sales revenue = = 200 Payments to labor = = 100 Payments to capital = = 100 Agriculture: Sales revenue = = 200 Payments to labor = = 50 Payments to land = = 150 Holding the price of agriculture constant, suppose the increase in the price of manufacturing is 20% and the increase in the wage is 10%. a. Determine the impact of the increase in the price of manufacturing on the rental on land and the rental on capital. (measured in percentage change) b. Explain what has happened to the real rental on land and the real rental on capital. Part III. TRUE or FALSE, Explain. 1. In a 2x2x2 Heckscher-Ohlin context, when a relatively labor-abundant country moves from autarky to trade, the real return to capital in the import- competing industry decreases and the real return to capital in the export industry also decreases. 2. In the 'specific-factors model,' with labor is mobile in each sector and capital and land are fixed in each sector, when a country moves from autarky to trade, the real return to capital in the export industry increases. The real return to labor in exporting industry increases as well

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!