Reference no: EM131004936
Consider the following Specific Factors model. Suppose two countries, Home and Foreign, produce two goods, timber and televisions. Assume that land is specific to timber, capital is specific to televisions, and labor is free to move between the two industries. When the Home country moves into doing free trade with the Foreign country, the price of TV rises in Home and the price of timber remains unchanged.
Determine whether each statement is true or false, then briefly explain why.
(1) Home exports TV to Foreign under free trade.
(2) Home produces only TV under free trade.
(3) Labor employment increases for the TV industry in Home.
(4) The workers’ purchasing power for TV increases in the Home country.
(5) Capital owners are better off under free trade in the Home country.
(6) After free trade, the rental rate for land increases relative to the price of TV in the Home country.
(7) The marginal product of labor for the timber industry increases under free trade in the Home country.
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