2 Consider a Specific Factors model with two countries, Home H and Foreign F, three factors of production, labour L, capital K and land T, and two goods, cars c and bread b. The production functions are the same in both countries and given by: 1 Fe(Ke, Le) = K L} and Fr(Lb, Tv) = L}{T}³ Denote the factor prices by r for capital, w for labour and q for land. The price for cars is pc, the price for bread pb. Home's factor endowment is given by KH = 8, LH = 1 and TH = 1, Foreign's factor endowment by KF = 1, LF = 1 and TF = 1. Suppose that relative demand for the goods is the same in both countries: Normalise bread price ie P₁ = PH= P=1 H ¹/x = pt/pc and x/x = Pb/pc. a) Derive autarky equilibrium good and factor prices in both Home and foreign and show that PH

2 Consider a Specific Factors model with two countries, Home H and Foreign F, three factors of production, labour L, capital K and land T, and two goods, cars c and bread b. The production functions are the same in both countries and given by: 1 Fe(Ke, Le) = K L} and Fr(Lb, Tv) = L}{T}³ Denote the factor prices by r for capital, w for labour and q for land. The price for cars is pc, the price for bread pb. Home's factor endowment is given by KH = 8, LH = 1 and TH = 1, Foreign's factor endowment by KF = 1, LF = 1 and TF = 1. Suppose that relative demand for the goods is the same in both countries: Normalise bread price ie P₁ = PH= P=1 H ¹/x = pt/pc and x/x = Pb/pc. a) Derive autarky equilibrium good and factor prices in both Home and foreign and show that PH

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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