Log in
Economics
6
answers
0
watching
166
views
1 Mar 2018

Consider the specific factors model we learned in class. Suppose two countries initially have the same supply of labor, capital, and land. Then suddenly the capital stock in Home has doubled.

(a) Show how the increase in the supply of capital for Home affects its production possibility frontier.

(b) On the same graph, draw the relative supply curve for both Home and Foreign.

(c) If those two economies open up to trade, what will be the pattern of trade?

(d) Describe how opening up to trade affects all three factors (labor, capital, land) in both

Watch
6
answers
0
watching
166
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share
Already have an account? Log in
Share
Already have an account? Log in
Share
Already have an account? Log in
Share
Already have an account? Log in
Share
Keith Leannon
Keith LeannonLv2
3 Mar 2018
Already have an account? Log in
Share

Related textbook solutions

Principles of Economics
2nd Edition, 2017
Openstax
ISBN: 9781947172364
Principles of Macroeconomics
2 Edition,
Openstax
ISBN: 9781947172388
Principles of Microeconomics
2 Edition,
Openstax
ISBN: 9781947172340

Related questions

Suppose there are two identical countries (the Banana Republic and the Apple Republic), except that they have their specific factors. Both Banana Republic and the Apple Republic have labour and capital and timber. They produce two goods: computers and furniture. Computers are produced with labour and capital and furniture are with labour and timber. Initially, both countries have the same supply of labour (100 units each), capital, and timber. Now suppose that the capital stock in the Banana Republic grows. If those two countries open up to trade, which country exports which good?

Part I. Multiple Choice Questions. Please circle the right answer (one mark each)

1. Which of the following are economic goods?

a. Atlantic Ocean sea water.

b. Iowa farm land.

c. California coast line.

d. All of the above.

e. All of the above, except a.

2. The three fundamental questions of economic organization are:

a. closely related to the concept of scarcity.

b. not nearly as important today as they were at the dawn of civilization.

c. what, how, and why.

d. land, labor, and capital.

e. all of the above.

3. Which of the following statements applies to a mixed economy?

a. There is confusion and a lack of organization.

b. The allocation of resources changes from production period to production period.

c. There are no real examples of truly mixed economies.

d. Mixed economies include aspects of both market and command economies.

e. None of the above statements apply.

4. Capital is:

a. the same as money.

b. the headquarters of economic planning.

c. both an input and an output.

d. all of the above.

e. none of the above.

5. Land, labor, and capital are:

a. available only in finite amounts.

b. used to produce outputs.

c. the primary factors of production.

d. combined with technology in the production process.

e. all of the above.

6. Which of the statements below does not apply to the production-possibility frontier, or PPF?

a. The PPF is closely related to the concept of scarcity.

b. Quantities of inputs are measured along the axes of the PPF.

c. The PPF may shift over time.

d. Movements along the PPF may occur as the allocation of resources changes.

e. Technology may change the shape of the PPF.

7. Which of the statements below is a reason why an economy might produce a level of output that is beneath its production-possibility frontier?

a. The available resources are not equally suited to the production of both outputs.

b. The available body of technological knowledge is not being fully utilized.

c. Society prefers one product over the other.

d. In reality, economies produce thousands of goods not just two.

e. There are no frontiers left anymore.

8. In order to shift the PPF out (above and to the right), an economy would have to:

a. somehow increase its stock of inputs.

b. remove some incompetent bureaucrats from their jobs.

c. eliminate the sources of significant abuse of monopoly power.

d. all of the above.

e. none of the above.

.

9. Sana notices that no matter how many paper cups she buys, she always pays the same price per cup. This means that the supply curve which confronts her is:

a. perfectly inelastic.

b. perfectly elastic.

c. unit-elastic.

d. elastic, but not necessarily perfectly elastic.

e. none of these things, necessarily

10. A perfectly inelastic supply curve would be shown in the ordinary supply-and-demand graph as a:

a. vertical line.

b. horizontal line.

c. straight line, but neither horizontal nor vertical.

d. curved line.

e. any of the above.

Mexico's automobile industry is booming. Bolstered by $19 billion in new investment from foreign carmakers, including Nissan, Honda, Volkswagen, and Mazda, vehicle production doubled between 2009 and 2014 to an estimated 3.2 million vehicles. This investment surge has transformed Mexico into the eighth-largest automaker in the world, and it's not over yet. In 2014 and 2015, Toyota, Mercedes-Benz, Hyundai-Kia, BMW, and Volkswagen all outlined plans to build new state-of-the-art factories in Mexico. Audi is also constructing a $1.3 billion factory that is slated for producing luxury sport-utility vehicles. The Audi factory is scheduled to open in 2016. Taken together, these new factories represent another $20 billion in investment that will push Mexico past Brazil and South Korea to become the sixth-largest car producer in the world by 2020 with an annual output of 4.7 million vehicles (for comparison, the U.S. industry makes some 11.5 million autos a year). The initial stimulus for the dramatic growth of the Mexican auto industry was the establishment of the North American Free Trade Agreement (NAFTA) in 1994. Prior to NAFTA, Mexico's auto industry was small and protected from foreign competition by high tariff barriers. Car prices in Mexico were two to three times higher than in the United States. Not only were cars in Mexico more expensive, exporting or importing cars and parts was also very tough. Shipments got delayed at the border and were difficult to move around because of poor infrastructure, which is a major problem in an industry in which tight logistics is critical. NAFTA removed most tariff and nontariff barriers to trade between Mexico, the United States, and Canada. This initially led to a flood of low-priced auto imports into Mexico from the United States, but it also gave auto manufacturers based in Mexico duty-free access to the large U.S. market next door. With labor costs in Mexico just a fraction of those in the United States, auto manufacturers now had to consider Mexico when planning new plants to serve the North American market. Mexico's shift to free trade didn't stop with NAFTA. Mexico spent much of the 2000s hammering out free trade deals with over 40 other countries, including the 28 states of the European Union, Japan, and Brazil. These deals give auto factories based in Mexico duty-free access to markets that contain 60 percent of the world's economic output, and they have helped transform Mexico into the fourth-largest auto exporter in the world. Eighty percent of the cars now produced in Mexico are exported to other countries, two-thirds of them to the United States. This unprecedented network of regional trade agreements has given Mexico an important edge when it comes to attracting new investment. For example, when BMW ships cars to Europe from its 20-year-old plant in South Carolina, it is hit with a 10 percent import duty. For a $50,000 car, that amounts to $5,000, which is a much bigger factor than differences in labor costs. A factory in Mexico can supply both the U.S. and the EU markets with duty-free automobiles. This was a major factor behind BMWs 2014 decision to build a new factory in central Mexico rather than the United States, far outweighing the $500 a car labor cost advantage that Mexico currently enjoys over the United States. The new BMW factory will supply the U.S. and EU markets, as well as Latin America. Indeed, because of differences in trade barriers, a car exported from the United States to Brazil costs 55 percent more than one exported from Mexico. As Mexico's auto industry has grown, auto-part suppliers have also followed manufacturers to Mexico. The large auto parts supplier Delphi, for example, has 30 factories in Mexico and generates revenues of $3 billion in the country. Employment at Delphi's facilities doubled to 24,000 between 2007 and 2014. Infrastructure has also improved dramatically, and customs clearance at the border is now quick and efficient. All of this bodes well for the future of the Mexican auto industry. However, not everyone is happy with what has happened. Some argue that growth in Mexico has come at the expense of factories in the United States, which has had a negative impact on employment growth in the U.S. auto industry. When BMW decided to build a factory in central Mexico, for example, it meant that it would not be expanding its South Carolina plant. The South Carolina plant will continue to operate, and no plants have been closed as a result of the growth of production in Mexico, but it is true that new plants are increasingly being located south of the border. Sources: Joann Muller, America's Car Capital Will Soon Be... Mexico,€ Forbes, July 20, 2014; Dudley Althaus and William Boston, Trade Pacts Give Mexico an Edge,” The Wall Street Journal, March 18, 2015; Sonari Glinton, How NAFTA Drove the Auto Industry South, National Public Radio, December 8, 2013; Serena Maria Daniels, Twenty Years after NAFTA, a Mini Detroit Rises in Mexico,” Bridge, September 25, 2014. CASE DISCUSSION QUESTIONS

1. What was the initial impact of NAFTA on the U.S. and Mexican automobile markets? Who benefited most from this?

2. How did the impact of NAFTA start to change location decisions by automobile manufacturers over the years? How did this start to impact automobile production in Mexico and the United States?

3. Mexico has been very proactive in signing regional free trade deals in addition to NAFTA. How has this strategy impacted automobile consumers and producers in Mexico? How has it impacted automobile consumers and producers in the United States?

4. What lessons can United States policymakers draw from the growing success of the Mexican automobile industry that can be applied to future free trade deals, such as the deal currently being negotiated between the United States and the European Union?

Related Documents

ECO 2121 Lecture Notes - Lecture 6: Real Wages, Budget Constraint, Free Trade
beigesquirrel670
ECO 3111
Final Exam
Study Guide
ECO 3111 Study Guide - Quiz Guide: Marginal Product
blackgoat316
ECO230Y1 Lecture Notes - Lecture 6: Marginal Product, Shortage, Production Function
greenraccoon19

Weekly leaderboard

Home
Homework Help 3,900,000
Economics 400,000
Start filling in the gaps now
Log in