Consider the Specific Factors model with two countries, Home and Foreign, with twogoods, cloth (c) and food (f), and three factors, capital K, labour L and land T.The production functions are given by1 1Fc(Kc, Lc) = K² Lễ and Fƒ(Lƒ,Tƒ) = L==That is, capital is specific to cloths and land to food. Suppose that the countries'factor endowments are KH : 1 = KF, LH= 1 and LF1, and TH 1 andTF = 1/2, so that the total labour force is 1 in both countries. The price of capital isdenoted by r,the price of land by q and the price of labour by w. Denote the goods'prices by pc and pƒ, and normalise pf = 1 for simplicity.The demand for cloth and food in country j = H, F is given by x and rlyjlyjx²and x2 pc2 pwhere YJ denotes aggregate income in country j.(a) Draw or compute the PPFs of Home and Foreign.(b) Derive the autarky equilibrium in Home, showing that L = L and r² = qH.(c) Compute the autarky equilibrium in Foreign and compare equilibrium prices inHome and in Foreign. Explain.(d) With free trade in both goods c and f, which good will Home export, and willcapital owners, land owners and workers each be better off? Explain or compute.==

PPF production possibility frontier the locus of points depicting the output mix which a country can…

Consider the Specific Factors model with two countries, Home and Foreign, with two goods, cloth (c) and food (f), and three factors, capital K, labour L and land T. The production functions are given by Fe(Ke, Le) = K² L² and Fƒ(Lƒ,Tƒ) = L}T}. = = 1 and LF = That is, capital is specific to cloths and land to food. Suppose that the countries' factor endowments are KH 1 = KF, LH 1, and TH = 1 and TF = 1/2, so that the total labour force is 1 in both countries. The price of capital is denoted by r, the price of land by q and the price of labour by w. Denote the goods' 1 for simplicity. prices by pe and and normalise pf Pf, = The domand buntmu a U Din ma

Consider the Specific Factors model with two countries, Home and Foreign, with two goods, cloth (c) and food (f), and three factors, capital K, labour L and land T. The production functions are given by Fe(Ke, Le) = K² L² and Fƒ(Lƒ,Tƒ) = L}T}. = = 1 and LF = That is, capital is specific to cloths and land to food. Suppose that the countries' factor endowments are KH 1 = KF, LH 1, and TH = 1 and TF = 1/2, so that the total labour force is 1 in both countries. The price of capital is denoted by r, the price of land by q and the price of labour by w. Denote the goods' 1 for simplicity. prices by pe and and normalise pf Pf, = The domand buntmu a U Din ma

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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