INTERNATIONAL MOVEMENT OF RESOURCES ECO 41 UDAYAN ROY

Transcription

1 INTERNATIONAL MOVEMENT OF RESOURCES ECO 41 UDAYAN ROY Whenever a question refers to two resources, such as capital and labor, please assume that the conditions of the Factor Endowment (or, Heckscher-Ohlin) theory are applicable, unless otherwise indicated. 1. Suppose there are two countries, Australia and Belgium, two goods, food and cloth, and two resources, capital and labor. Let all the assumptions of the Factor Endowment (or Heckscher-Ohlin) theory be satisfied. Let Australia be the capitalabundant country and let Belgium, therefore, be the labor-abundant country. Let food be the capital-intensive good and let cloth, therefore, be the labor-intensive good. In autarky, and are both higher in Australia; and are both higher in Belgium. a. w/p F, w/p C, r/p F, r/p C. b. r/p F, r/p C, w/p F, w/p C. c. w/p F, r/p F, w/p C, r/p C. d. w/p C, r/p C, w/p F, r/p F. 2. Continuing with the previous question, if international trade in goods is still not allowed by law, but factors of production are allowed to freely move from country to country, a possible outcome is that would go from Australia to Belgium and would go from Belgium to Australia. a. CAPITAL, CAPITAL. b. CAPITAL, LABOR. c. LABOR, CAPITAL. d. LABOR, LABOR. 3. Continuing with the previous question, as a result of the international movement of productive resources, and will fall in Australia and rise in Belgium till the former is the same in both countries, as is the latter. a. w/p F, w/p C. b. r/p F, r/p C. c. both (a) and (b) are true. d. w/p F, r/p F. e. w/p C, r/p C. f. both (d) and (e) are true. 4. Assuming that the assumptions of the Heckscher-Ohlin theory are satisfied and that, as in the previous questions, trade in goods is restricted while trade in productive resources is unrestricted. If there is immigration from Mexico to the US, the preimmigration US labor force will be off.

2 5. Continuing with the previous question, US owners of capital would be off. 6. Continuing with the previous question, the US as a whole (not counting the Mexican immigrants) would be off. 7. Continuing with the previous question, the Mexican immigrants would be off. 8. Continuing with the previous question, the Mexican laborers who stayed back in Mexico would be off. 9. Continuing with the previous question, Mexican owners of capital would be off.

3 10. Continuing with the previous question, Mexico as a whole (not counting those who left for the US) would be off. 11. Continuing with the previous question, Mexico and the US, considered jointly, would be off. 12. Continuing with the previous question, Mexico as a whole (now counting the Mexican citizens who left for the US) would be off. (w/p) home (w/p) foreign A B D H The thick and sloping lines are the labor demand curves of Home and Foreign Populations before migration C E F I 4 G J O 50 O * world labor force = 200 Home employment is measured left to right from O and Foreign employment is measured right to left from O*. So, before migration, there were 50 people in Home and 150 people in Foreign.

4 13. Consider the figure above. Before immigration is allowed, the real wage is in Home and in Foreign. a. 4; 10 b. 4; 16 c. 16; 10 d. 16; 4 e. 10; After immigration is allowed, the real wage becomes in Home and in Foreign. a. 4; 4 b. 10; 10 c. 16; 16 d. 16; After immigration is allowed, people will migrate from. a. Home to Foreign b. Foreign to Home c. Both a and b are true; there will be two-way migration d. There will be no migration because real wages were equal even before migration was allowed 16. Use the letters A through J to fill in the empty cells in the Table below. Before migration is allowed After migration is allowed (Residents) After migration is allowed (Citizens) Home Foreign Home Foreign Home Foreign Wages Non- Labor Income Output

5 17. Suppose the migrant-receiving country has policies in place to tax its original citizens, who are mainly rich, and to use the tax revenues to help the immigrants, who are mainly poor and do not contribute much in taxes. According to the graphical analysis of migration, the original citizens of the migrant-receiving country and the original citizens of the migrant-sending country. a. will surely be better off; will surely be better off b. will surely be worse off; will surely be better off c. may end up worse off; will surely be better off d. will surely be better off; may end up worse off 18. Let us compare immigration and outsourcing. In the case of immigration, a worker travels from, say, Mexico City in Mexico to Waukesha in Wisconsin to work for General Electric. In the case of outsourcing, the worker stays in Mexico City and does some work for General Electric which he then sends to Waukesha by . Suppose the US government is required by its laws to provide financial help to poor immigrants but is not required to give financial help to outsourcing-industry workers in foreign countries. Our graphical analysis suggests that,. 19. a. US citizens will benefit from both immigration and outsourcing b. US citizens will benefit from immigration but not necessarily from outsourcing c. US citizens will benefit from outsourcing but not necessarily from immigration d. US citizens will not benefit from either immigration or outsourcing