111 1

Homework 3
Due on November 16

1. Suppose that, from an initial consumer equilibrium position, the price of one
good falls while the price of the other good remains the same. Using indifference
curve analysis, explain how and why the consumer's relative consumption of the
two goods will change.

2. In the figure shown below, as one moves from S' to V', is the country producing
more or less of the capital-intensive good and less or more of the labor-intensive
good? What should happen to the demand for labor and the demand for capital as
this movement takes place? What will happen to relative factor prices? Will the
slope of the isoquants at the point of tangency on the contract curve be the same
at V' at it was at S'? Why or why not?

3. Use indifference curves and a PPF curve to illustrate a free trade equilibrium for
a country facing an exogenous international price. Then show what happens if
that exogenous price changes in the direction of raising the relative price of the
country's exported good. Such a change is customarily called an "improvement"
"terms of trade." Is this terminology necessarily appropriate?

4. Explain the difference between the price and the physical definitions of factor
abundance. When could they give conflicting answers about which factor is the
abundant factor?

5. Assume that Country H and Country F have the same technology in the
production of Good X and Good Y, in which X is labor-intensive and Y is

Page 1 of 2
111 1

capital-intensive, respectively. Use this information to answer the following

questions:

(a). Given the factor endowment of two countries as below, does trade happen
between two countries? Why? Why not?

Capital Labor

Country H $1000 million 500 persons

Country F $2000 million 1000 persons

(b). Given the factor endowment of two countries as below, does trade happen
between two countries? Why? Why not?

Capital Labor
xY
Country H $1000 million 500 persons

Country F $2000 million 2000 persons

(c). If both H and F allow free trade, what good has a comparative advantage
for each country? What is the pattern of trade? Explain.

(d). For country H, which factor of production is beneficial after free trade?
Which factor is suffering a loss from trade? Explain based on the real
reward of a factor.

(e). If there is demand reversal between two countries, can the pattern of trade
answered above still exist? Why? Why not?

6. Before Taiwan joined the WTO, hundreds of workers walked off the job in
protest of the accession. Make use of the Stopler-Samuelson theorem to justify
intentions of protests or demonstrations undertaken by the workers.

7. Use the Rybcz more disparities in factor

endowments exist between two countries, the more possibilities for both
countries lead to

[End of Homework 3]

Page 2 of 2
 丫

⼘ v .

V .
atE 1 : y
=
E ,
E 3
if Px ↓
. P5 →
( ↓→ , 最箭下 )
x ↑ yd

箭 ,k

goodstensive
producesflesofk
in
-

2 11 )
cwuntry
more f L -

intemsive
goods
123 dem and for labor increase and demand for capital decrease

13 ) factor price = 些 3 ; w ↑ rd ∴ ≈ will incredse

(4 ) N 0 ,
因為等產量線 要素價格 =

,
⼼的 )> s ' 的织 )

F
5 川不會 ,
∵ (↑)÷ 2 = 1片 ) ,
兩國比較利益相同

123 會
" F
, "
∵ (是 ) ≥ 2 ( 恰) ] : ,
countryH is capital abundant

3 ountry
H eaports Y and country F exports X

intensive good imporet -

intensiiegostintensive
…有比較利益 expore
k -
13 ) H cap
在
, [
F good Tmport gowd K - intensie

(4)
Hexportk intensivegood ⼀

3 貿易使出⼝產晶的價格相對 ↑
,
進⼝產晶價格相對 ↓

r ↑ ,
w ↓

Capital factor
3 is benefited
labor fautor is loss from trade

, 卡如果對intenintensivegoods有強烈需求
- Fk -

) inteasiventensive
k

151 N
γH ↑→ H
F 张
,
ω ↑ , 号
) 1

6 ,
當開放 WTO , 台灣可進⽇ L
⼀

intemsive 產晶 , 使台灣 w ↓ ,
進⽽促使勞⼯抗議
priceof crease the reward of the faltor
= give d increase im the d
commodiy will in ased intensively
In the sector and deerease the real reward of the other setor .

onstant commodity price endownmens of factor

theorem given difer sification and
d increGse in the
Rybcrynski
a
7
,

that uses thefactor intensively

will increase by a
greatr proportion
the
orpue of the sector

and decrease the output of the other Sector .

當 free trade 發⽣ 根據 _

,
H - O 理論 , 各個國家只會往專業化發展