Week 3

Question 1

Short run

Answer 1

FOPs are fixed, thus laborers, plots of land and other inputs are tied to current lines of production. The demand for these factors, and therefore the incomes or returns they earn, depend on the sector in which they are employed.
For the short run, gains and losses divide by output sector: All groups tied to rising sectors gain, and all groups tied to declining sectors lose. One would expect
employers, landlords, and workers in the declining sectors to unite in protest.

Question 2

Long run

Answer 2

FOPs can move between sectors in response to differences in returns

Question 3

Stolper-Samuelson theorem (SS theorem)

Answer 3

certain conditions and assumptions, including full adjustment to a new long-run equilibrium, an event that
changes relative product prices in a country unambiguously has two effects:
• It raises the real return to the factor used intensively in the rising-price industry.
• It lowers the real return to the factor used intensively in the falling-price industry.

Question 4

Factor-price equalization theorem

Answer 4

If factors cannot migrate between countries directly, with free trade

• laborers (of the same skill level) earn the same wage rate in both countries
• units of land (of comparable quality) earn the same rental return in both countries

Question 5

Four conditions and assumptions needed for Stolper-Samuelson theorem

Answer 5

1. The country produces positive amounts of two goods with two factors of production used in producing each good. One good is relatively land-intensive, the other is relatively labor-intensive.
2. Factors are mobile between sectors and fully employed overallin the economy.
3. Competition prevails in all markets.
4. Production technology involves contant returns to scale.

Question 6

Leontief paradox

Answer 6

a country with a higher capital per worker has a lower capital/labor ratio in exports than in imports.

Questions the Heckscher-Ohlin Theorem, which states that countries produce and export what they can create most efficiently, depending on their factors of production.

Question 7

Heckscher-Ohlin model & Samuelson

Question 8

Rogowski

Answer 8

“Political cleavages and political exposure to trade”, 1987

Question 9

Assumption about international trade and domestic political processes

Answer 9

gainers from exogenous change will want to continue and expand free trade, whilelosers seek protection

Question 10

“long” sixteenth century

Answer 10

Improvements of navigation and shipbuilding, leads to an expansion of trade. Core economies in Northwest Europe characterised by abundance in Capital and Labour but relative scarcity in Land. The periphery had abundance in Land but were poor in Labour and Capital.

Question 11

Nineteenth centure situation according to Rogowski

Answer 11

1987
Northwest European states and Britain would have a urban-rural conflict. Kapital and Labour are abundant and are for more free trade while Land is scarce and wants protectionists measures.

Rest of Europe similar to Germany, poor in Kapital and Land but abundant in Labour, class conflict as a consequence of increased exposure to trade

Question 12

Rise of socialism in Rogowski’s model

Answer 12

1987, political cleavages and changing exposure to trade

backward and labour-rich economies under conditions of expanding trade