Question

4. In the specific-factors model, assume that the price of agricultural goods decreases while the price of manufactured goods is unchanged in the HOME country (APA/P40 and AP MPM= 0). HOME country exports the manufacturing goods. a. Based on the prediction of the specific-factors model, who (The owner of capital or owner of land) is better off? b. Arrange the following terms in ascending order (Please show the steps clearly): ΔΡΑ/ΡΑ APMPM ART/RT ARK/Rk AW/W (A diagram like Figure 3.5 in the ppt is useful)

Answer 1

Answer: (4) Given in specific factors model, the price of agricultural goods decreases while the price of manufactured goods is unchanged in home country. APALPA LO APM(Pm 3o. @ The better off is: > The general role for the specific factors modelis that a decrease in the elative price of an industry leads to a real loss of the factors specific in that factor a real return to the specific industry, and in the other industry, 6 Ascending order: The order is:

NI ART/RT < DPm) pm <Dw/w < APALPA <ARKIRK • This is due to the magnificance impact where price of agriculture decrease while price of the manufacturing remains the same. - o-