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2. (Adapted from FT) Suppose that in a country, there are two goods that can be produced: good 1 and good 2. 1 For good 1, we know that: Sales revenue = P191 = 200 Payments to capital = K₁r = 100 Payments to labor = L₁w = 100 (a) Which good is capital intensive? For good 2, we know that: Sales revenue = p292 = 200 Payments to capital = K₂r = 50 Payments to labor = L2w = 150 (b) How do the wage and the rental on capital change if price of good 1 increases by 5%? To simplify the analysis, we assume that the price of good 2 does not change, nor do the quantities produced of each good, or the quantities of production factors used for producing each good. (c) Which factor gains in real terms? What can you conclude about a change in the relative price on the returns to production factors?

2. (Adapted from FT) Suppose that in a country, there are two goods that can be produced: good 1 and good 2. 1 For good 1, we know that: Sales revenue = P191 = 200 Payments to capital = K₁r = 100 Payments to labor = L₁w = 100 (a) Which good is capital intensive? For good 2, we know that: Sales revenue = p292 = 200 Payments to capital = K₂r = 50 Payments to labor = L2w = 150 (b) How do the wage and the rental on capital change if price of good 1 increases by 5%? To simplify the analysis, we assume that the price of good 2 does not change, nor do the quantities produced of each good, or the quantities of production factors used for producing each good. (c) Which factor gains in real terms? What can you conclude about a change in the relative price on the returns to production factors?

Principles of Economics 2e
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter33: International Trade
Section: Chapter Questions
Problem 22CTQ: You just got a job in Washington, D.C. You move into an apartment with some acquaintances. All your...
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2. (Adapted from FT) Suppose that in a country, there are two goods that can be produced: good 1 and good 2. 1 For good 1, we know that: Sales revenue = P191 = 200 Payments to capital = K₁r = 100 Payments to labor = L₁w = 100 (a) Which good is capital intensive? For good 2, we know that: Sales revenue = p292 = 200 Payments to capital = K₂r = 50 Payments to labor = L2w = 150 (b) How do the wage and the rental on capital change if price of good 1 increases by 5%? To simplify the analysis, we assume that the price of good 2 does not change, nor do the quantities produced of each good, or the quantities of production factors used for producing each good. (c) Which factor gains in real terms? What can you conclude about a change in the relative price on the returns to production factors?
Transcribed Image Text:2. (Adapted from FT) Suppose that in a country, there are two goods that can be produced: good 1 and good 2. 1 For good 1, we know that: Sales revenue = P191 = 200 Payments to capital = K₁r = 100 Payments to labor = L₁w = 100 (a) Which good is capital intensive? For good 2, we know that: Sales revenue = p292 = 200 Payments to capital = K₂r = 50 Payments to labor = L2w = 150 (b) How do the wage and the rental on capital change if price of good 1 increases by 5%? To simplify the analysis, we assume that the price of good 2 does not change, nor do the quantities produced of each good, or the quantities of production factors used for producing each good. (c) Which factor gains in real terms? What can you conclude about a change in the relative price on the returns to production factors?
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