Consider a country that produces shirts and autos

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Specific Factors Model

Consider a country that produces shirts and autos. Shirts are produced with sewing machines (specific factor) and labor while autos are produced using robots (specific factor) and labor. Labor is mobile between industries. The country is initially in autarky (no trade) and then goes to trade, which causes the relative price of autos in terms of shirts to increase.

Problem 1: Show how going to international trade affects the budget constraint of a laborer. Use the Beaker diagram and make sure to reference marginal products in your answer.

Problem 2: Show how going to international trade affects the budget constraint of the owner of a robot. Make sure to reference marginal products in your answer.

Reference no: EM13860219

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