Consider our standard model of the economy, with two goods (wheat and cloth) and two factors (land and labor). Suppose a decrease now occurs in the relative price of wheat. What are the short run effects on the earnings of labor employed in the wheat industry and labor employed in the cloth industry?
The earnings of labor in both industries rise.
The earnings of labor in both industries fall.
The earnings of labor in the wheat industry falls and the earnings of labor in the cloth industry rise.
The earnings of labor in the wheat industry rise and the earnings of labor in the cloth industry fall.
Not enough information to answer the question.
2.5 points
QUESTION 2
Consider our standard model of the economy, with two goods (wheat and cloth) and two factors (land and labor). Assume that wheat production is land-intensive. Suppose a decrease now occurs in the relative price of wheat. What are the long run effects on the earnings of labor employed in the wheat industry and labor employed in the cloth industry?
The earnings of labor in both industries rise.
The earnings of labor in both industries fall.
The earnings of labor in the wheat industry falls and the earnings of labor in the cloth industry rise.
The earnings of labor in the wheat industry rise and the earnings of labor in the cloth industry fall.
Not enough information to answer the question.
2.5 points
QUESTION 3
Consider again the standard two good (cloth and wheat), two factor (land and labor) model. Suppose that Pcloth rises and you find the following: % change in r > % change in Pcloth > % change in Pwheat = 0 > % change in w. What does this imply?
This indicates that both cloth and wheat are labor intensive.
This indicates that cloth production is labor intensive.
This indicates that cloth production is land intensive.
This indicates that both cloth and wheat are land intensive.
None of the above.
2.5 points
QUESTION 4
Consider again the standard two good (cloth and wheat), two factor (land and labor) model. Suppose that Pcloth rises and you find the following: % change in r > % change in Pcloth > % change in Pwheat = 0 > % change in w. What does this mean?
It means that owners of capital have experienced an increase in their real earnings (and hence their living standard) since the rise in the rental rate makes it possible to buy more of all products, including the one whose price has risen.
It means that laborers have experienced an increase in their real earnings (and hence their living standard) since the rise in the wage rate makes it possible to buy more of all products, including the one whose price has risen.
It means that laborers have experienced a rise in their living standard since the cost of renting land has fallen.
It means that the owners of capital have experienced a fall in their living standard since the rise in the rental rate is sufficient to make up for the rise in the price of cloth.
None of the above.
2.5 points
QUESTION 5
You are given the following input cost shares in the corn and vehicle industries for the country of Pugelovia:
For Each Dollar of
Corn output
Vehicle output
Overall National Income
Total labor input
$0.60
$0.59
$0.60
Total land input
0.15
0.06
0.10
Total capital input
0.25
0.35
0.30
$1.00
$1.00
$1.00
Suppose that a change in demand conditions in the rest of the world raises the price of corn relative to vehicles, so producers in Pugelovia try to expand production of corn in order to export more corn. If all factors are FREELY MOBILE between the corn and vehicle sectors, who gains from this change?
Owners of land (regardless of where utilized) lose; owners of capital (regardless of where utilized) gain; and, laborers are likely to be mildly positively affected if at all.
Owners of land (regardless of where utilized) gain; owners of capital (regardless of where utilized) lose; and, laborers are likely to be mildly positively affected if at all.
Laborers (regardless of where utilized) gain and owners of capital and land (regardless of where utilized) lose.
The owners of all factors employed in cloth production gain.
The earnings of all factors employed in vehicle production lose.
2.5 points
QUESTION 6
According to the factor price equalization theorem, free trade will lead to an equalization of the real wage earned by labor to the real rental rate earned by landowners in the United States.
True
False
2.5 points
QUESTION 7
Answer questions 7-8 using the following information: The U.S., a land abundant nation, has decided to open up to trade. Wheat production in the U.S. is land-intensive and cloth production is labor intensive. In the SHORT RUN, opening up to trade is expected to have what impact on the earnings of U.S. land owners (Tc, Tw) and laborers (Lc, Lw)?
The earnings of Tc, Lc, Tw, and Lw will decline.
The earnings of Tc, Lc, Tw, and Lw will rise.
The earnings of Tc and Lc will decline, and those of Tw and Lw will rise.
The earnings of Tc and Lc will rise, and those of Tw and Lw will decline.
The earnings of Tc and Tw will rise, and the earnings of Lc and Lw will fall.
2.5 points
QUESTION 8
Assume that we are now in the LONG RUN. The opening up to trade is expected to have what impact on the earnings of the U.S. factors of production?
The earnings of land owners (Tc and Tw) will fall and the earnings of workers (Lw and Lc) will rise.
The impact on the earnings of landowners is uncertain, but the earnings of Lw and Lc will rise.
The earnings of Tc and Lc will decline, and those of Tw and Lw will rise.
The earnings of Tc and Lc will rise, and those of Tw and Lw will decline.
The earnings of landowners will rise, and the earnings of Lc and Lw will fall.
2.5 points
QUESTION 9
As a result of the North American Free Trade Agreement (NAFTA), the United States and Canada shifted toward free trade with Mexico. According to the Stolper-Samuelson theorem, how is this shift affecting the real wage of unskilled labor in the United States? (Assume that Mexico is abundant in unskilled labor and scarce in skilled labor relative to the United States and Canada.)
The real wage of unskilled labor in the United States decreases.
The real wage of unskilled labor in the United States increases.
The real wage of skilled labor in the United States decreases.
The real wage of skilled labor in Mexico decreases.
Not enough information to answer the question.
2.5 points
QUESTION 10
As a result of the North American Free Trade Agreement (NAFTA), the United States and Canada shifted toward free trade with Mexico. According to the Stolper-Samuelson theorem, how is this shift affecting the real wage of unskilled labor in Mexico? (Assume that Mexico is abundant in unskilled labor and scarce in skilled labor relative to the United States and Canada.)
The real wage of unskilled labor in Mexico falls.
The real wage of unskilled labor in Mexico rises.
The real wage of skilled labor in the U.S. and Canada remains unchanged.
The real wage of skilled labor in the U.S. and Canada falls.
Not enough information to determine the impact on the real wage of Mexican unskilled labor.