Economics Homework Help

R1

The scenario I choose is the first one. The labor would want to be paid more since the price of food went up while Capital would need to be increased as well. The labor in manufactured goods would stay the same while the Capital would stay the same. The manufactured would not be impacted since everything would be the same while food would be better off. The reason is that they could get paid more from the price being increased with the increased Capital. The mobile factor for food there can be more employees that want to work there and employees that already worked there would get an increased in pay. The mobile factor for manufactured is it would stay the same or be less because employees would see that food is getting more money. The immobile factor would be the same for manufactured since nothing is changing while for food it could increase since it shows food increasing as well. The company could want to increase the price for the raised price of equipment.

I would choose the first one again for the Heckscher-Ohlin model. The wage rate for labor in food increases however so would be manufactured since it has more labor at a slower rate. The capital would be increased with the food as well since people get worked there a lot more than manufactured for a while till manufactured catches up. Food would be worse off at the start because they were less labor-intensive and they would need to catch up on the rising price of food. While manufacturing is used to the amount of labor they used leaving the better off for the long run till they get back to the amount of being more intense than food.

Reference:

Krugman, P. R., Obstfeld, M., & Melitz, M. (2018). International economics: theory and policy. Pearson.

R2

I am going to choose to talk about scenario 1: price of food increases; price of manufactured goods stays the same.

When it comes to the labor sectors in this case employees are going to be wanting to be paid more because they are going to need more money since the food prices are increases. They will need this raise to help provide for themselves. As far as the company goes they are better off because they aren’t having to pay more for the products since the manufactured goods are staying the same. This means the company is making money off of customers because the customers are paying the higher prices when the company doesn’t really need that extra income since the price of these goods is staying the same. Therefore, the customers are taking a hit while the company is better off because now they are making more than they usually do.

For part 2 I am going to talk about the same scenario.

With the food prices going up, eventually over time the manufactured goods are going to go up as well because the manufactured company is going to start seeing a rise in prices with what they do. All of this cashflow eventually comes back a hit a company on way or another. Sometimes this can take a day and sometimes it will take decades it all just depends. The manufactured goods that are staying the same is usually a more agriculture job that is going to require more physical labor from an employee. Which is why eventually the employee is going to realize the food prices are up and someone is making extra money and it is not that particular person who is making the money.

Reference:

The Specific Factor Model: Overview. (n.d.). https://saylordotorg.github.io/text_international-trade-theory-and-policy/s08-15-the-specific-factor-model-over.html.

R3

For the following scenario; demand for manufactured goods increases and supply of food increases you would likely see an increase in the wage rate for labor in manufacturing. As demand increases, there will need to be an increase in productivity and supply which could result in the increases wages. Because of the increase in supply of food, wages would be stagnant for agriculture because demand has not changed. In this case, workers in manufacturing would be better off while workers in agriculture would be less impacted. There could be an influx of workers shifting to manufacturing because of the better pay, this being the mobile factor. The immobile factors being equipment, would not be impacted because they are industry specific.

Sticking with the second option where demand for manufactured goods increases and supply of food increases, we would likely see an increase in wage rates for manufacturing. Because it is more labor intensive, it will cost more to meet the increased demand. Agriculture would not be as impacted by this. Rental rates for capital in manufacturing could go up because there is a higher demand for it. I think those in manufacturing would be better off because where there is higher demand there is the need for more work and more potential pay.