MU Ch3 Specific Factors Model Discussion

Description

Instructions: This is an individual assignment. Please read Chapter 3 Gains and Losses from Trade in the Specific-Factors Model (you are responsible for p. 61 – 79 & p. 82 – 84 Application). Type up your answers to the following questions:
What are the two specific factors?
What are the assumptions made about the specific factors?

What is the mobile (non-specific) factor?
What is the meaning of diminishing returns to labor? How does this affect the shape of PPF?
Are there gains from trade for the Home country as a whole? Why?

What will happen to a worker’s nominal wage and real wage when trade causes Home country’s relative price of manufactures to go up? Explain using the case where PM ┬áincreases and PA stays unchanged after trade compared to autarky.
What will happen to a capital owner’s nominal rental and real rental when trade causes Home country’s relative price of manufactures to go up? Explain using the case where PM ┬áincreases and PA stays unchanged after trade compared to no trade.
What will happen to a land owner’s nominal rental and real rental when trade causes Home country’s relative price of manufactures to go up? Explain using the case where PM ┬áincreases and PA stays unchanged after trade compared to no trade.

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Explanation & Answer:
400 words

Tags:
capital for manufacturing

marginal effect of each hired employee

manufacturing and agriculture

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