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LABOR-INTENSIVE GOODS 10 9 8 1 0 0 1 2 3 4 7 CAPITAL-INTENSIVE GOODS 5 6 8 Once trade begins, the price of labor in Tomczakistan 9 10 New Production In Leightvania, the price of labor stays the same decreases increases

LABOR-INTENSIVE GOODS 10 9 8 1 0 0 1 2 3 4 7 CAPITAL-INTENSIVE GOODS 5 6 8 Once trade begins, the price of labor in Tomczakistan 9 10 New Production In Leightvania, the price of labor stays the same decreases increases

Principles of Macroeconomics (MindTap Course List)
Principles of Macroeconomics (MindTap Course List)
7th Edition
ISBN:9781285165912
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter3: Interdependence And The Gains From Trade
Section: Chapter Questions
Problem 9PA
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answer the following and please explain if possible !

+ where do i exactly put the new production (green line) on the graph. if needed.

Thank you

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LABOR-INTENSIVE GOODS 10 9 8 7 6 01 3 2 1 0 0 1 2 A + 3 4 5 6 7 CAPITAL-INTENSIVE GOODS 8 Once trade begins, the price of labor in Tomczakistan 9 10 A- New Production (?) . In Leightvania, the price of labor stays the same decreases increases
Transcribed Image Text:LABOR-INTENSIVE GOODS 10 9 8 7 6 01 3 2 1 0 0 1 2 A + 3 4 5 6 7 CAPITAL-INTENSIVE GOODS 8 Once trade begins, the price of labor in Tomczakistan 9 10 A- New Production (?) . In Leightvania, the price of labor stays the same decreases increases
4. Factor-price equalization The fictional country of Tomczakistan is a nation that is relatively rich in labor resources. It can produce two types of goods, capital-intensive goods and labor-intensive goods. Tomczakistan's production possibilities frontier (PPF) is shown on the following graph. Currently, Tomczakistan is closed to international trade and producing at the grey point (star symbol) labeled A on the graph. Suppose that Tomczakistan is going to trade with Leightvania, a country that is relatively rich in capital and was also previously closed to international trade. On the following graph, use the green point (triangle symbol) to indicate which way Tomczakistan will adjust its production by placing it on one of the two black points (plus symbol). Dashed droplines will automatically extend to both axes.
Transcribed Image Text:4. Factor-price equalization The fictional country of Tomczakistan is a nation that is relatively rich in labor resources. It can produce two types of goods, capital-intensive goods and labor-intensive goods. Tomczakistan's production possibilities frontier (PPF) is shown on the following graph. Currently, Tomczakistan is closed to international trade and producing at the grey point (star symbol) labeled A on the graph. Suppose that Tomczakistan is going to trade with Leightvania, a country that is relatively rich in capital and was also previously closed to international trade. On the following graph, use the green point (triangle symbol) to indicate which way Tomczakistan will adjust its production by placing it on one of the two black points (plus symbol). Dashed droplines will automatically extend to both axes.
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