Econ 433: Advanced International Trade

| November 24, 2016

Econ 433: Advanced International Trade

Homework 3

Due in class, October 15, 2015

Full credit requires full explanations!

Problem 1 (Immigration-Short Run): Home produces fish using unskilled labor (U) and capital (K) and computers using skilled (S) and (U). Unskilled labor is mobile between industries. Capital and skilled labor are specific to their industries. Goods prices are fixed on world markets.

1a. Suppose that Home experiences an inflow of unskilled workers. How does this inflow affect the real wage paid to skilled and unskilled labor?

1b. Now suppose instead that Home experiences an inflow of skilled workers. How does this inflow affect the real wage paid to skilled and unskilled labor?

Problem 2 (Immigration-Short Run): Use the global beaker diagram (see figure 5-14 in the book) to analyze the following problem. Home and Foreign initially have the same wage when political conflicts occur within Home. A substantial number of workers (the mobile factor) flee home and enter the foreign work force instead.

2a. How does the exodus of workers affect the earnings of workers in Foreign?

2b. How does the exodus of workers affect the earnings of specific factor owners in Foreign?

Problem 3 (Immigration- long run): Home (H) produces autos and shirts using skilled (S) and unskilled (U) labor. Autos are skill intensive relative to shirts. Home is trading at fixed world prices. Now suppose that a substantial portion of the country’s unskilled workers leave home for foreign.

3a. How does an outflow of unskilled labor into H affect output of each good? Explain using the Box diagram. Also, comment on how the outflow of unskilled labor affects factor prices in H.

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