The Specific Factors Model Suppose there are two countries, Home and Foreign. Both countries produce iPhone...
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The Specific Factors Model Suppose there are two countries, Home and Foreign. Both countries produce iPhone and Steel. The production of iPhone requires capital (K) skilled labor (H). The production of Steel requires capital (K) and unskilled labor (L). The two countries have the following production functions for iPhone and Steel: (pay extra attention, capital is the mobile factor here!) Qiphone = K¹/2 H¹/2; Qsteel = K¹/2¹/2 Factor Endowment Stock at Home and Foreign: Home: capital (Khome) =600, skilled labor (Hhome) = 500, unskilled labor (Lhome) = 100 Foreign: capital (Kforeign) =1000, skilled labor (Hforeign) = 800, unskilled labor (Lforeign) = 200 ● (2 points) (show your steps and reasoning) Does the production function for iPhone exhibit constant, increas- ing, or decreasing returns to scale with respect to Capital (K) only? - Both capital (K) and High-skilled labor (H)? . (2 points) Calculate the marginal of capital (MPK) for both iPhone and Steel. • (4 points) Suppose home autarkic prices for iPhone and Steel are p₁ and ps, and p = ps = 1. Calculate the rental rate equilibrium and capital allocation for home country. • (2 points) Suppose foreign autarkic prices for iPhone and Steel are p' and p's, and p = p's = 1. Calculate the rental rate equilibrium and capital allocation for foreign country. • (5 points) Draw the "Butterfly" Graph for the Home country. Then, without any calculation, by inspecting the autarkic relative price of iPhones at Home and Foreign, can you make any conjecture on their trade pattern if the two countries were to engage in free trade with each other? (Lable all x and y axis) Ps P's • (5 points) Graphically show the aggregate gains from trade for Home country. (< < ), where is the world relative price. . (5 points) Based on the above relative price inequality, analyze the distribution effect of free trade at Home. More specifically, point out the winners and losers (capital owners, skilled labor, unskilled-labor) after trade at Home using the "Scissors" graph. Then disucss and draw the impact of foreign direct investment (inrease in K) on returns to capital, skilled and unskilled labor. The Specific Factors Model Suppose there are two countries, Home and Foreign. Both countries produce iPhone and Steel. The production of iPhone requires capital (K) skilled labor (H). The production of Steel requires capital (K) and unskilled labor (L). The two countries have the following production functions for iPhone and Steel: (pay extra attention, capital is the mobile factor here!) Qiphone = K¹/2 H¹/2; Qsteel = K¹/2¹/2 Factor Endowment Stock at Home and Foreign: Home: capital (Khome) =600, skilled labor (Hhome) = 500, unskilled labor (Lhome) = 100 Foreign: capital (Kforeign) =1000, skilled labor (Hforeign) = 800, unskilled labor (Lforeign) = 200 ● (2 points) (show your steps and reasoning) Does the production function for iPhone exhibit constant, increas- ing, or decreasing returns to scale with respect to Capital (K) only? - Both capital (K) and High-skilled labor (H)? . (2 points) Calculate the marginal of capital (MPK) for both iPhone and Steel. • (4 points) Suppose home autarkic prices for iPhone and Steel are p₁ and ps, and p = ps = 1. Calculate the rental rate equilibrium and capital allocation for home country. • (2 points) Suppose foreign autarkic prices for iPhone and Steel are p' and p's, and p = p's = 1. Calculate the rental rate equilibrium and capital allocation for foreign country. • (5 points) Draw the "Butterfly" Graph for the Home country. Then, without any calculation, by inspecting the autarkic relative price of iPhones at Home and Foreign, can you make any conjecture on their trade pattern if the two countries were to engage in free trade with each other? (Lable all x and y axis) Ps P's • (5 points) Graphically show the aggregate gains from trade for Home country. (< < ), where is the world relative price. . (5 points) Based on the above relative price inequality, analyze the distribution effect of free trade at Home. More specifically, point out the winners and losers (capital owners, skilled labor, unskilled-labor) after trade at Home using the "Scissors" graph. Then disucss and draw the impact of foreign direct investment (inrease in K) on returns to capital, skilled and unskilled labor.
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Specific Factors Model 1 iPhone production exhibits Increasing returns to scale with respect to capi... View the full answer
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