Labor share of national income

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Consider the economy, Sokovia. You will use the Heckscher-Ohlin (HO) Model to answer the following questions. In this case, both cloth and food industries use both labors and capital, and, in Sokovia, cloth is more capital intensive and food is more labor intensive.

a) If the labor force increases, what happens to the wage of labor and to labor's share of national income? Explain using Lerner diagram.

b) If the world price of cloth falls, what happens to the real rental on capital and to the output of food? Explain using Lerner diagram.

c) Suppose that technology improves in this country only, permitting it to produce more cloth with the same amounts of factors. What happens to its output of cloth and its real wage of labor? Explain using Lerner diagram.

Reference no: EM132401171

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