EC315 Problem Sets:
PS2:
Show that home has higher wage under free trade – take ratio of wages
Export supply/import demand – country with non comparative advantage in a good produces none
of that good and pays world relative price for it, CA pays relative price pg/pg
PS3 – Specific factors:
Employment ratio LM/LA – Use MPLs and use MPLA X PA = MPLM X PM
Rk = PmMPKm Rt = PaMPTa
PS4 – HO Part 1:
Find capital and labour income share: Let Is + Ic = total income
Use cobb douglas and WxLc = a/a+b x I and same for Ls
Derive an expression for Ps/Pc: use PsMPLs = PCMPLC and PsCs = PcCc = a/a+b x I
Find relative labour demand: Find MPLs and MPK and use W = PsMPLS and R = PsMPKs
PS6 – HO Part 3:
Derive cost function – Cs = Ps = Ls/Ys x W + R x Ks/Ys
Find Ls/Ys and Ks/Ys and sub into above equation and use Cs = Ps
PS7: Offhsoring
Offshore when TCs < Cs
PS9: IRS
Find operating profits as a function of c – find P as a function of Q using Q formula and use MR = MC
and use OP = (p-c)q. Find MR by finding TR and differentiating
PS3:
RER – multiply by PH^A/PH^A and PF/PF
Transport costs – PXh = Pxf(1-t) and Pyf = Pyh(1-t) as home imports y and foreign imports x
PS5:
Germany has increased private and public spending and doesn’t change it money supply, France has
fixed exchange rate – increase in I and C increases german interest rate and also France interest rate
PS2:
Show that home has higher wage under free trade – take ratio of wages
Export supply/import demand – country with non comparative advantage in a good produces none
of that good and pays world relative price for it, CA pays relative price pg/pg
PS3 – Specific factors:
Employment ratio LM/LA – Use MPLs and use MPLA X PA = MPLM X PM
Rk = PmMPKm Rt = PaMPTa
PS4 – HO Part 1:
Find capital and labour income share: Let Is + Ic = total income
Use cobb douglas and WxLc = a/a+b x I and same for Ls
Derive an expression for Ps/Pc: use PsMPLs = PCMPLC and PsCs = PcCc = a/a+b x I
Find relative labour demand: Find MPLs and MPK and use W = PsMPLS and R = PsMPKs
PS6 – HO Part 3:
Derive cost function – Cs = Ps = Ls/Ys x W + R x Ks/Ys
Find Ls/Ys and Ks/Ys and sub into above equation and use Cs = Ps
PS7: Offhsoring
Offshore when TCs < Cs
PS9: IRS
Find operating profits as a function of c – find P as a function of Q using Q formula and use MR = MC
and use OP = (p-c)q. Find MR by finding TR and differentiating
PS3:
RER – multiply by PH^A/PH^A and PF/PF
Transport costs – PXh = Pxf(1-t) and Pyf = Pyh(1-t) as home imports y and foreign imports x
PS5:
Germany has increased private and public spending and doesn’t change it money supply, France has
fixed exchange rate – increase in I and C increases german interest rate and also France interest rate
