PROBLEMSET #2 23102123

a) max V Y, =
+
Ys
k, 2

St;kstkr -

I
Kstkp= KF
1000. Ks
1000
=

1000 -

LstLF =
1000 Ls+LF 1000
=

=200-Ls

Y
=
kp/3/43
=

Ys=ks"LI

man 1,000 -
K.)" (1000-L)* okst22s
Ks, Is

FOC:1)
I (2000-ks)*(-)) (1000-1) Ks 0
=

#) E (1000-1,)"(-1) (1000-kall* of Likg=

i)
(t) (5)
=(o)
4.
Ihe
(1000 -ks)"3ks"=1,000 rss" -

15)
(1000-12000) Ks rks") Ks
1000Ks +kg" (1000
=
-

ts/Ls" (5)"-2000
1
(s)"ks(ks= 9s.33&L, =W23.8&k=wow. 6dL,=
=

576
b)
I MRTS
=

Pretense
=

real
wage? wireal= Eks* =0.39
wirea IKLI* 0.59
=

=
c) 1.05 MRTS solves the max PYp+ PsYs
als
Ps>P,were the steel industry is more
capital intensive than
labour. There an
is increase in factor demand in the steel industry,and

given perfectmobility of factors the return to capital will

increase relative to
wages.
Wreal= 0.51 <WI,3
wireal=0.51 wire
⑫ 20/02/23

a) In Spain
skill workers will be in favour of trade liberalization

Spain
a Yo Yo Romania

--------- El)"*
>YYL >Y >Y
↑textiles (YL)cars
capital abundant -> cars capital
intensive

RSFT

st
- RSS
RSTOR

(-
----
! in
- -
- -

RD RD*RDFT
=

Ye
>
now,i
ESpET
Pyp
I
rien istie Mours mask ↓y

EspEM-1 II ↑ ↑
D)
Under Free trade we reach E
⑧ Spain initiallysupplies Abut under FTmoves toa since itcan importfrom turkey
at a relatively lower price. Textiles. This makes the relative of
cost
producing textiles fall,
unskilled labour will decrease.
thatis the marginal product of
⑰ From free migration, unskilled workers are worse off. considering free
Without

trade, then Pyps, from Rybazynskitheorem we understand the exogenous increase in endowment
favours the sector intensive in that factor
production.
by expanding A->

C) Under free trade remuneration for skilled workers apreciates, whileitdepreciates for unskilled workers.
This affects the insentive for unskilled workers to
directly acquire skills
and
getbetter remuneration.
 I Om
Rc minE
=
min
=

[80,803
VO, WO3
=00

NO
=

I⑦ France
80
=

km+kc 100
1 km
=

2k

100 (mthc kc 50 fkm

=
= -

00 km + 50
1 km
=

=88 (km
30 3/wkm
=

No; kc wol
= =

PeteWich,we rece
I
a) i) champagne is labour intensive while C) Artarky
in C Qand from
=

our

mobile phones are capital intensive I Lobb-Douglas we find

ii) Germanyhas relative abundance of capital

Merci ret
iii) From the H-0 theorem we understand that
countries
I
play to their
strenghts.
Germany exports phones while mobile

I
France exports
champagne and both import
(=
from each other.
b) max;CiC!
Crite al) Under free trade prices between those in

Germany equalize. And given the

Timingareas tothe
France and
Leontiff production function, production is the same.
Supply
Am otW= e
I
=

R=minEL,
2kc}·L 2k
=

has relativelyDemanda for both countries

4
the
8 < F: Germany endowment
= a is same
=

larger capital
()*
I

① bermany I =

1
=
=
=

100

30
kc km
=

(+ (m
=
+

100

L 200
=

=
2Lm+
-
Whi
I
km 80 00 200 WLm+m
=

I
&
= -

kc = 20 - ((m wo;( wo)

=

= =
e)
GermannyS I 9)Results are consistent with floo

run
FI
Frances
theorem. Both exportthe good which

intensively uses the factor the countryis

I

inno
relatively abundant with.

e
Pr.pitp im.+4.c
I
=

Quit (WP;80)
st:/)e I I Q"
MRSV 1 =

↓ (00;wo)

E
I
1
=

Qui+Rc (m+c
=

120 22m
=

Lin 60 C!
I
=

it (France, Germany)

I
Qu -(m Exo = -
20

Q 2,0 IM 20
=
-

am CmY=IM - = -

20

&F-CmY Ex =
20
=

5) Welfare in Autorky
against Free Trade
WA (00)" (wo)" (60) (60) FT,6
=

I
=

UAF (wo)" (80)"((60)(60)* FT.F

= =

56,57460

such thatboth countries

gain from
trade)
liberalization.

I
a) From Stolper-Samuelson under very
theorem low endowments for
country, Belgium
a

in this case, low labour endowment. Such that ratios lie

very Belgium'scapital/labour outside
the diversification, one, them to produce only beer. And the Netherlands to diversity.
as leading
kn(*)(ke/zi)
kr
Lone of

Diversification Y

b) Yes, there is capital mobility. Belgium byexperting beer, it experting capital to

is

Netherlands. And the same fromNetherland'sside. No equalization of

prices.

C)
Capital Beer Capital
Belgium- -
↳
Netherlands
- (labour
Tulips
d) Relative factor prices stop but
converging,
goods prices do converge.
Myregion Beer
Yu
Tulips

site... =
·in
4t
- e m e re
e n

There are higher factor prices in Netherlands than in

Belgium. Capital owners in Belgium will seek to sell their

capital Netherlands. Then beer sector in Netter lands
in expands while that of
Tulips shrinks. By the RybczynskiTheorem,
ru> Vi
Wist Wi K-> KNYthen Erb until r=V and if thatis the case

(**:(* real
then
E Wis:We wages equalize.

I
2) If free migration is allowed then workers in Netherlands No need for migration since

both countries have the factor

are indifferentbecause Belgium though would pay more in
same

"relative factor prices, they only produce beer. Hence, there is no

prices.

labour mobility. Butlabour catturn to capital overnight, the same

happens with the owners Hence, probably these workers will

ofthe factors.

migrate from Belgium to Netherlands regardless ofthe lower compensation, which

sbetter than nothing.
Af

In lightof the previous analysis, factor mobility is

constrained byspecialization. And though specialization
is the better
strategy to given factor endowment,
play,
not the bestif to consider time horizon.
is we were a
longer
 Norway kn WO =
(n 30
=

Sweden ks 30
=

Ls NO
=

Goods Under FT
-> K intensive
aI
& intensive

⑧ Ks? Kw hence Sweden experts "good x

③ Kowners will
gain from trade x

② country sweden
imports "sgood x

⑯ relative price coats

of decrease in Sweder v