1、7CHAPTER 2 LABOR PRODUCTIVITY AND COMPARATIVE ADVANTAGE: THE RICARDIAN MODELANSWERS TO TEXTBOOK PROBLEMS1. a. The production possibility curve is a straight line that intercepts the apple axis at 400 (1200/3) and the banana axis at 600 (1200/2).b. The opportunity cost of apples in terms of bananas i
2、s 3/2. It takes three units of labor to harvest an apple but only two units of labor to harvest a banana. If one foregoes harvesting an apple, this frees up three units of labor. These 3 units of labor could then be used to harvest 1.5 bananas.c. Labor mobility ensures a common wage in each sector a
3、nd competition ensures the price of goods equals their cost of production. Thus, the relative price equals the relative costs, which equals the wage times the unit labor requirement for apples divided by the wage times the unit labor requirement for bananas. Since wages are equal across sectors, the
4、 price ratio equals the ratio of the unit labor requirement, which is 3 apples per 2 bananas.2. a. The production possibility curve is linear, with the intercept on the apple axis equal to 160 (800/5) and the intercept on the banana axis equal to 800 (800/1). b. The world relative supply curve is co
5、nstructed by determining the supply of apples relative to the supply of bananas at each relative price. The lowest relative price at which apples are harvested is 3 apples per 2 bananas. The relative supply curve is flat at this price. The maximum number of apples supplied at the price of 3/2 is 400
6、 supplied by Home while, at this price, Foreign harvests 800 bananas and no apples, giving a maximum relative supply at this price of 1/2. This relative supply holds for any price between 3/2 and 5. At the price of 5, both countries would harvest apples. The relative supply curve is again flat at 5.
7、 Thus, the relative supply curve is step shaped, flat at the price 3/2 from the relative supply of 0 to 1/2, vertical at the relative quantity 1/2 rising from 3/2 to 5, and then flat again from 1/2 to infinity. 3. a. The relative demand curve includes the points (1/5, 5), (1/2, 2), (1,1), (2,1/2). b
8、. The equilibrium relative price of apples is found at the intersection of the relative demand and relative supply curves. This is the point (1/2, 2), where the relative 8demand curve intersects the vertical section of the relative supply curve. Thus the equilibrium relative price is 2.c. Home produ
9、ces only apples, Foreign produces only bananas, and each country trades some of its product for the product of the other country.d. In the absence of trade, Home could gain three bananas by foregoing two apples, and Foreign could gain by one apple foregoing five bananas. Trade allows each country to
10、 trade two bananas for one apple. Home could then gain four bananas by foregoing two apples while Foreign could gain one apple by foregoing only two bananas. Each country is better off with trade.4. The increase in the number of workers at Home shifts out the relative supply schedule such that the c
11、orner points are at (1, 3/2) and (1, 5) instead of (1/2, 3/2) and (1/2, 5). The intersection of the relative demand and relative supply curves is now in the lower horizontal section, at the point (2/3, 3/2). In this case, Foreign still gains from trade but the opportunity cost of bananas in terms of
12、 apples for Home is the same whether or not there is trade, so Home neither gains nor loses from trade.5. This answer is identical to that in 3. The amount of “effective labor“ has not changed since the doubling of the labor force is accompanied by a halving of the productivity of labor.6. This stat
13、ement is just an example of the pauper labor argument discussed in the chapter. The point is that relative wage rates do not come out of thin air; they are determined by comparative productivity and the relative demand for goods. The box in the chapter provides data which shows the strong connection
14、 between wages and productivity. Koreas low wage presumably reflects the fact that Korea is less productive than the United States in most industries. As the test example illustrated, a highly productive country that trades with a less productive, low-wage country will raise, not lower, its standard
15、 of living.7. The problem with this argument is that it does not use all the information needed for determining comparative advantage in production: this calculation involves the four unit labor requirements (for both the industry and service sectors, not just the two for the service sector). It is
16、not enough to compare only services unit labor requirements. If als als*, Home labor is more efficient than foreign labor in services. While this 9demonstrates that the United States has an absolute advantage in services, this is neither a necessary nor a sufficient condition for determining compara
17、tive advantage. For this determination, the industry ratios are also required. The competitive advantage of any industry depends on both the relative productivities of the industries and the relative wages across industries.8. While Japanese workers may earn the equivalent wages of U.S. workers, the
18、 purchasing power of their income is one-third less. This implies that although w=w* (more or less), pp* (since 3p=p*). Since the United States is considerably more productive in services, service prices are relatively low. This benefits and enhances U.S. purchasing power. However, many of these ser
19、vices cannot be transported and hence, are not traded. This implies that the Japanese may not benefit from the lower U.S. services costs, and do not face an international price which is lower than their domestic price. Likewise, the price of services in United States does not increase with the openi
20、ng of trade since these services are non-traded. Consequently, U.S. purchasing power is higher than that of Japan due to its lower prices on non-traded goods.9. Gains from trade still exist in the presence of nontraded goods. The gains from trade decline as the share of nontraded goods increases. In
21、 other words, the higher the portion of goods which do not enter international marketplace, the lower the potential gains from trade. If transport costs were high enough so that no goods were traded then, obviously, there would be no gains from trade. 10. The world relative supply curve in this case
22、 consists of a step function, with as many “steps“ (horizontal portions) as there are countries with different unit labor requirement ratios. Any countries to the left of the intersection of the relative demand and relative supply curves export the good in which they have a comparative advantage rel
23、ative to any country to the right of the intersection. If the intersection occurs in a horizontal portion then the country with that price ratio produces both goods.10CHAPTER 3SPECIFIC FACTORS AND INCOME DISTRIBUTIONANSWERS TO TEXTBOOK PROBLEMS1. Texas and Louisiana are states with large oil-produci
24、ng sectors. The real wage of oil-producing factors of production in terms of other goods falls when the price of oil falls relative to the price of other goods. This was the source of economic decline in these states in 1986.2. To analyze the economys production possibility frontier, consider how th
25、e output mix changes as labor is shifted between the two sectors.a. The production functions for goods 1 and 2 are standard plots with quantities on the vertical axis, labor on the horizontal axis, and Q1= Q1(K1,L1) with slope equal to the MPL1, and on another graph, Q2= Q2(K2,L2) with slope equal t
26、o the MPL2. Q1 L2 L1 PF1 slope= -1 slope= -1/2 10 PF2 PF Q1 10 10 Figure 3-111b. To graph the production possibilities frontier, combine the production function diagrams with the economys allocation of labor in a four quadrant diagram. The economys PPF is in the upper right hand corner, as is illust
27、rated in the four quadrant diagram above. The PPF is curved due to declining marginal product of labor in each good.3. a. To solve this problem, one can graph the demand curve for labor in sector 1, represented by (w=MPL1=demand for L1) and the demand curve for labor in sector 2, represented by (w=M
28、PL2=demand for L2) . Since the total supply of labor is given by the horizontal axis, the labor allocation between the sectors is approximately L1=27 and L2=73. The wage rate is approximately $0.98.Lw p2xMPL2p1xMPL10 27 10L1 L2$1.0Figure 3-2b. Use the same type of graph as in problem 2b to show that
29、 sectoral output is Q1=44 and Q2=90. (This involves combining the production function diagrams with the economys allocation of labor in a four quadrant diagram. The economys PPF is in the upper right hand corner, as illustrated in the text.)c. Use a graph of labor demands, as in part a, to show that
30、 the intersection of the demand curves for labor occurs at a wage rate approximately equal to $0.74. The relative decline in the price of good 2 caused labor to be reallocated: labor is drawn out of production of good 2 and enters production of good 1 (L1=62, L2=38). This also leads 12to an output a
31、djustment, whereby production of good 2 falls to 68 units and production of good 1 rises to 76 units.d. With the relative price change from p2/p1=2 to p2/p1=1, the price of good 2 has fallen by 50 percent, while the price of good 1 has stayed the same. Wages have fallen, but by less than the fall in
32、 p2 (wages fell approximately 25 percent). Thus, the real wage relative to p2 actually rises while to real wage relative to p1 falls. Hence, to determine the welfare consequences for workers, information is needed about their consumption shares of good 1 and good 2.4. The box diagram presented below
33、 is a useful tool for showing the effects of increasing the supply of the mobile factor of production, labor.a. For an economy producing two goods, X and Y, with labor demands reflected by their marginal revenue product curves, there is an initial wage of w1 and an initial labor allocation of Lx=OxA
34、 and Ly=OyA. When the supply of labor increases, the right boundary of this diagram is pushed out to Oy. The demand for labor in sector Y is pulled rightward with the boundary. The new intersection of the labor demand curves shows that labor expands in both sectors, and therefore output of both X an
35、d Y also expand. The relative expansion of output is ambiguous. Wages paid to workers fall. Ox A B 1 2 w1 PxMPLx w2 PyMPLy Oy Oy Figure 3-3b. From the shape of the MPL curves, it is clear that labor will continue to exhibit diminishing returns. Using a four quadrant diagram, you can demonstrate that
36、 the new production possibility frontier is more concave and steeper (flatter) at the ends. Using 13the numerical example, L1 increases to 90 from 62 and L2 increases to 50 from 38. Wages decline from $0.74 to $0.60. This new allocation of labor yields a new output mix of approximately Q1=85 and Q2=
37、77.14CHAPTER 4 RESOURCES AND TRADE: THE HECKSCHER-OHLIN MODELANSWERS TO TEXTBOOK PROBLEMS1. The definition of cattle growing as land intensive depends on the ratio of land to labor used in production, not on the ratio of land or labor to output. The ratio of land to labor in cattle exceeds the ratio
38、 in wheat in the United States, implying cattle is land intensive in the United States. Cattle is land intensive in other countries too if the ratio of land to labor in cattle production exceeds the ratio in wheat production in that country. Comparisons between another country and the United States
39、is less relevant for this purpose. 2. a. The box diagram has 600 as the length of two sides (representing labor) and 60 as the length of the other two sides (representing land). There will be a ray from each of the two corners representing the origins. To find the slopes of these rays we use the inf
40、ormation from the question concerning the ratios of the production coefficients. The question states that aLC / aTC = 20 and aLF / aTF = 5. Since aLC / aTC = (LC /QC) / (TC /QC) =LC /TC we have LC =20TC. Using the same reasoning, aLF / aTF = (LF /QF) / (TF /QF) =LF /TF and since this ratio equals 5,
41、 we have LF =5TF. We can solve this algebraically since L=LC+LF=600 and T=TC+TF=60.The solution is LC=400, TC=20, LF=200 and TF=40.b. The dimensions of the box change with each increase in available labor but the slopes of the rays from the origins remain the same. The solutions in the different cas
42、es are as follows.L=800: TC=33.33, LC=666.67, TF=26.67, LF=133.33L=1000: TC=46.67, LC=933.33, TF=13.33, LF=66.67L=1200: TC=60, LC=1200, TF=0, LF=0. (complete specialization).c. At constant factor prices, some labor would be unused, so factor prices would have to change, or there would be unemploymen
43、t.153. This question is similar to an issue discussed in Chapter 2. What matters is not the absolute abundance of factors, but their relative abundance. Poor countries have an abundance of labor relative to capital when compared to more developed countries. 4. In the Ricardian model, labor gains fro
44、m trade through an increase in its purchasing power. This result does not support labor union demands for limits on imports from less affluent countries. Labor may gain or lose from trade in the context of the Immobile Factors model. Purchasing power in terms of one good will rise, but in terms of t
45、he other good it will decline. The Heckscher-Ohlin model directly addresses distribution by considering the effects of trade on the owners of factors of production. In the context of this model, unskilled U.S. labor loses from trade since this group represents the relatively scarce factors in this c
46、ountry. The results from the Heckscher-Ohlin model support labor union demands for import limits. 5. Conditions necessary for factor price equalization include both countries (or regions) produce both goods, both countries have the same technology of production, and the absence of barriers to trade.
47、 The difference between wages different regions of the United States may reflect all of these reasons; however, the barriers to trade are purely “natural“ barriers due to transportation costs. U.S. trade with Mexico, by contrast, is also subject to legal limits; together with cultural differences th
48、at inhibit the flow of technology, this may explain why the difference in wage rates is so much larger.6. The factor proportions theory states that countries export those goods whose production is intensive in factors with which they are abundantly endowed. One would expect the United States, which
49、has a high capital/labor ratio relative to the rest of the world, to export capital-intensive goods if the Heckscher-Ohlin theory holds. Leontief found that the United States exported labor-intensive goods. Bowen, Leamer and Sveikauskas found for the world as a whole the correlation between factor endowment and trade patterns to be tenuous. The data do not support the predictions of the theory that countries exports and imports reflect the relative endowments of factors.7. If the efficiency of the factors of production
