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chapter 5

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Problem 1P Chapter CH5 Problem 1P

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Step 1 of 3
International Consider the initial diagram showing increase in home labor due to immigration:
Trade
(3rd Edition) Edit edition

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Step 2 of 3
a.
Given the speci ed scenario, the impact of decrease in the labor workforce on the output and
equilibrium wage is shown with the help of given diagram:

In the above diagram, wage is taken in Y axis and labor in the X axis. The initial wage is represented
as W and the nal wage is W’. After the decrease in workforce, the origin for agriculture would shift
inwards in the same quantity as that of the change in population. Thus, the curve showing marginal
product of labor in agriculture would also shift inwards.

The new equilibrium point corresponding to the higher wage is represented by the intersection

of the lines and . As a result of this, the workforce volume in manufacturing

would drop by an amount which is equal to workforce decrease from to . However,
the capital amount would remain the same. Furthermore, this would result in decrease in the output
of manufacturing.
The number of worker employed for manufacturing is now OML` which was previously OML. OML >
OML` i.e. the number of labor decreases in the manufacturing industry.
The number of worker employed for agriculture is now O`AL` which was previously OAL. OAL > O`AL`
i.e. the number of labor decreases in the agriculture industry. As a result of this, the output of
agriculture would also decrease.

Step 3 of 3
b.
Due to the natural disaster, the workforce volume of labor in both the agriculture and manufacturing
industries would decrease. This would further result in increase of the marginal product of labor in
both industries. Due to this reason, the marginal product of industry speci c factors would decrease
in both the industries. Since the country is small, the output price would remain unchanged. Due to
this reason, the rental rate for capital i.e. and rental rate for land i.e., would
decrease.

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Corresponding textbook
International Trade | 3rd Edition
ISBN-13: 9781429278447 Alternate ISBN: 9781319029548, 9781319068905
ISBN: 1429278447
Authors: Robert C Feenstra, Alan M Taylor

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Solutions for problems in chapter 5

1P 2P 3P 4P 5P

6P 7P 8P 9P 10P

11P 12P

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