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How would such a tax alter the analysis of the interest parity condition? How does answer change if tax applies to interest earnings but not to capital gains?
Suppose that instead of 1200 workers, Home had 2400. Find the equilibrium relative price. What can you say about the efficiency of world production?
Japanese labor productivity is roughly the same as that of the United States in the manufacturing sector. What is wrong with this argument?
How does the fact that many goods are nontraded affect the extent of possible gains from trade?
Which of the explanations of failure of factor price equalization might account for this?
In the discussion of empirical results on the Heckscher-Ohlin model, we noted. Explain how efficiency would affect the concept of factor price equalization.
Counterpart to immobile factors on the supply side would be lack of substitution. Show that an improvement in the terms of trade benefits this economy, as well.
Why, then, do most economists regard immiserizing growth, where growth actually hurts the growing country, as unlikely in practice?
In practice much foreign aid is tied; that is, it comes with restrictions. Can you think of a scenario in which tied aid actually makes the recipient worse off?
Using the analysis of the transfer problem, how do you think this should affect the prices of Western European goods relative to those from the US and Japan?
Suppose that one country subsidizes its exports and the other country imposes. What happens to the terms of trade? What about welfare in the two countries?
In perfect competition, firms set price equal to marginal cost. Why isn't this possible when there are internal economies of scale?
Explain this tendency of industrial clusters to break up in terms of the theory of external economies.
Then, using the analysis, show that a tariff by one country will create an incentive for labor migration.
The Karma Computer Company has decided to open a Brazilian subsidiary. Analyze Karma's decision in terms of the theory of multinational enterprise.
Derive and graph Home's import demand schedule. What would the price of wheat be in the absence of trade?
Now allow Foreign and Home to trade with each other, at zero transportation cost. Find and graph the equilibrium under free trade.
Determine the effect of the tariff on the welfare of each of the following groups: Home import-competing producers, Home consumers and the Home government.
Explain how you would figure out the dollar/pound exchange rate implied by Pit When might it be a bad idea to use the PPP theory in this way?
Explain how permanent shifts in national real money demand functions affect real and nominal exchange rates in the long run?
Continuing with the preceding problem, discuss how the transfer would affect the long-run nominal exchange rate between the Iwo currencies?
Where should the demand expansion cause a greater real currency appreciation, in the tariff-using country or in the quota-using country?
Explain how the nominal dollarkuro exchange rate would be affected by permanent changes in the expected rate of real depreciation of the dollar against the CUM?
What do you expect to happen to the real dollar/euro exchange rate over the next year?
What happens to the expected real interest rate? Explain why the subsequent path of the real exchange rate satisfies the real interest parity condition.