Answers to Problem Set #2

1. The demand for resources in the two import-competing sectors will fall. So, in the short run, wages will fall a lot for workers in the land-intensive and the labor-intensive sectors, rents will fall a lot for land in the land-intensive and the labor-intensive sectors, and interest on capitall will fall in the land-intensive and the labor-intensive sectors.

The demand for resources in the capital-intensive export sector will rise. So, in the short run, wages, rents, and interest (lots) will all rise for resources employed in the capital-intensive sector.

In the long run, resources are mobile between sectors, so resources will move from the importing-competing sectors to the export sector. Eventaully, wages for all workers and rents on all land will fall compared to pre-trade levels. Interst on all capital will be higher compared to pre-trade levels.

2. See the notes for lecture 2.

3. See the notes for lecture 2.

David A. Latzko
318 COB
Department of Business and Economics
Wilkes University
Wilkes-Barre, PA 18766
phone: (717) 408-4718
fax: (717) 408-4917
dlatzko@wilkes.edu
wilkes1.wilkes.edu/~dlatzko