B4

Question 1

What is the diference between the specific factor model and the ricardian model

Answer 1

The specific factor, as the richardian model ass umes a bianry choice between relative production of twoo goods but it introduces specific factors of production that are specific to a particular good and has labor being a movable factor that can be moved between goods

Question 2

Are specific factors not movable

Answer 2

Not in the specific factor model but in reality they usually are given a certain amount of time as real capital can be sold and reinvested into other industries

Question 3

Are movable factors really freely movable

Answer 3

Not in reality, for a movable factor like labor it still takes about 4 years for a worker to switch industries, it also comes with an 18% drop in wages in the US

Question 4

What does it mean if the marginal product of labor is diminishing

Answer 4

That you produce less goods for each additional hour of labor added

Question 5

How does the production function for a product look if there is diminishing marginal returns to labor

Answer 5

In the begining in increases sharply as there is a lot of other factors but as labor increases the factors become spread thin and the increase diminishes unntill it straightens out horizontally

Question 6

How do you derive an economies production possibility fronteir between two goods and where there are two specific factors and one movable factor

Answer 6

You plot the production of the two goods by looking at the marginal return to the movable factor as it moves from one good to another. How much less will you have of one product if you want to produce another unit of the other

Question 7

What is the difference in the opertunity cost function in the ricardian model and the specific factor model

Answer 7

Becouse there are diminishing returns to the movable factor for each good the slope becomes curved insteead of straight in the specific factor model

Question 8

How is the value of labor calculated in the specific factor model

Answer 8

the value of labor becomes that when the price of the goods times the marginal products of that labor are equal.

Question 9

What is the formula for the production possibility curve in the specific factor model

Answer 9

negative the marginal product of the movalble factor for one good divided by the same for another good

Question 10

The relative price of two goods is tangent to the productio possibility fronteir

Answer 10

True, if MPFg1 * Pg1 = MPFg2 * Pg2 = w => -MPFg1/MPFg2 = -Pg1/Pg2 aka the slope is the same

Question 11

What happens to the production and wages in the specific factor model if prices increase equally in all products

Answer 11

There is no change in the proportional production or in real wages

Question 12

What happens if prices rise for only one good in the specific factor model

Answer 12

Movable factors like labor are shifted to the good but equalibrium wage is increased less than the price increases as the marginal return to labor decreases. Output of other goods decrease as labor shifts away from it.

Question 13

What are the effects of a price increase in one product on the owners of different factors in the specific factor model

Answer 13

The owners of the specific factors to the good that has had a price increase are better off while the owners of the specific factor to the other goods are definitely worse off. The effect on the owners of the movable factors like laborers is ambigous as their real wage for one good becomes more expensive while the other one becomes less so.

Question 14

What is the effect of opening up to trade in the specific factor model

Answer 14

As prices change to those on the international market, production shifts and the distribution of income changes in favor of those who own the specific factors that the country exports.

Question 15

Can a country consume of value more than it produces

Answer 15

No

Question 16

What is the equation of a budget constraint in the specific factor model

Answer 16

Dg1 - Qg1 = (Pg2/Pg1) * (Qg2 - Dg2)

Question 17

Why might everyone gain from trade

Answer 17

Becouse the possibility of consumption increases so the question is how the benefits of the ones who gain can be allocated towards those who looses while still benefiting those who gain

Question 18

Why are most economist in favor of free trade despite it hurting the most vunerable

Answer 18

Becouse 1. the vonerable will be hurt anyway through market volatility and technological progress 2. trade makes everyone better of in agregate terms so it creates more utility to allow trade and compensate the vunerable 3. the loudest voices are often the most organized and thus makes the political process more biased

Question 19

Is there evidence that increased exports hurts overall employment

Answer 19

No, it is more correlated with overall macroeconomic factors, specialised workers are however more vunerable so a social safetynet might help them

Question 20

What are the effects of movement in labor

Answer 20

If real wages are higher in one country then another it will all else equal and the absence of barriers lead to movement to the country with higher wages which increases the supply of labor and decreases it at home untill the equalibrium price becomes equal in both

Question 21

Who benefits from movement in labor

Answer 21

The world benefits as a whole as labor can be allocated where it is needed the most but the ones in the richer areas loose in addition to the factor owners in the country laborers leave.

Question 22

Is there evidence that wages converge when migration is allowed to occur

Answer 22

Yes, in the EU this is exactly what is happening

Question 23

I you have a graph showing the marginal product of labor the total amount produced is the area under the graph

Answer 23

True

Question 24

If more people are employed who gains a larger share, laborers or factor owners according to the marginal return to labor graph

Answer 24

Factor owners becouse labor is only payed as much as it smarginal return