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1、Chapter 8Resource Trade, Outsourcing, and Product FragmentationSuggested Answers to Textbook Questions1 According to equation 8.4, if the foreign country becomes more efficient in producing food(i.e., a*LF becomes smaller), the vertical intercept for the foreign country shifts upwards while the slop
2、e remains the same. If foreign labor becomes equally more efficient in producing both goods,the vertical intercept does not change.2. If the country was originally capital abundant such that the initial endowment ray would pass through point C, the country would initially produce goods 2 and 3 with
3、good 2 being the labor-intensive good of the two. International fragmentation would result in the country producing good 3 andB with the new unit-value isoquant being 3BF1 (where B is slightly to the left of F on the solid line shown in figure 8.4). The resulting increase in the capital-labor ratio
4、indicates an increase in the wage/renatl ratio.3. (a) If the world price of clothing is $2, then the home country can offer the footloose factor at most $2.25 and the foreign country can offer only $1.50. Therefore, the footloose factor is attracted to the home country. Thus, the home country produc
5、es both food and clothing and the foreign country produces only food. Wages are found from competitive profit conditions. They will be $1 in both countries.(b) If the world price of clothing rises to $8, then the home country can offer the footloose factor at most $3.50 and the foreign country can o
6、ffer $4. Therefore, the footloose factor is attracted to the foreign country. Thus, the foreign country produces both food and clothing and the home country produces only food. Wages are found from competitive profit conditions. They will be $1 in both countries. Wages do not change as they are dete
7、rmined by the world price of food and each countrys productivity in food production, none of which have changed. If the foreign country becomes more efficient in the food sector, then wages must rise. At a fixed world-clothing price, the return to the footloose factor used in clothing production mus
8、t then fall. Thus, the foreign country may lose the footloose factor, resulting in a loss of the clothing sector.Multiple Choice Questions1. Footloose industries are generally characterized by(a) high skill requirements.(b) simple assembly.(c) imported raw materials.(d) all of the above.(e) (b) and
9、(c).2. Developing countries tend to export products that(a) use a lot of capital.(b) use large amounts of natural resources.(c) have low value added per worker in the US.(d) are near the beginning of the product cycle.(e) none of the above.3. Innovative goods are generally(a) produced in low income
10、countries.Chapter 8Resource Trade, Outsourcing, and Product Fragmentation53(b) produced using capital intensive technology.(c) mass produced.(d) produced with skilled labor.(e) produced in high income countries over the entire life of the product.Questions 49 refer to a situation where production is
11、 Ricardian in nature. Food is produced by labor alone, with the home country requiring 2 units of labor per unit of food and the foreign requiring only 1. Clothing is produced with labor and an international footloose factor. Both the home and foreign country require 1 unit of labor per unit of clot
12、hing. The home country requires 2 units of the footloose factor and the foreign requires 3 per unit of clothing. The world price of food is $1.4. Which of the following describes this situation?(a) The foreign country has comparative advantage in labor costs and the home country hasan absolute advan
13、tage in attracting the footloose input.(b) The foreign country has comparative advantage in labor costs and absolute advantagein attracting the footloose input.(c) The home country has a comparative advantage in labor costs and an absolute advantagein attracting the footloose input.(d) The home coun
14、try has a comparative advantage in labor costs and the foreign country hasan absolute advantage in attracting the footloose input.(e) None of the above.5. If the world clothing price is $2, what is the most the home country can offer the footloose factor?(a) $0.50(b) $0.75(c) $1(d) $1.50(e) $1.756.
15、If the world price of clothing is $2, and the footloose factor requires $0.50 to be attracted, then(a) neither country attracts the footloose factor.(b) home produces food and the foreign country produces both goods.(c) both countries produce some clothing.(d) home produces both goods and the foreig
16、n country produces food.(e) the home wage rate will be higher than the foreign.7. If the world price of clothing is $2, and the return to the fixed factor is $0.50, then the home wage rate will be(a) $1.00(b) $0.75(c) $0.50(d) $1.25(e) $1.508. If the world price of clothing rises from $2 to $3, and the return to the fixed factor remains at $0.50, then(a) wages in both countries will fall.54Caves/Frankel/Jones - World Trade and Payments: An Introduction, Tenth Edition(b)
