There are two goods, Computers and Wheat, and two factors of production, capital and labor.Production in both sectors satisfies constant returns to scale. Production of computers isrelatively more capital-intensive. Both input and final goods markets are competitive. Goodsare freely traded internationally, but factors are immobile across countries. We will focus ouranalysis on the Home country. In the initial equilibrium, the Home country produces bothcomputers and wheat, but only exports wheat. In our analysis, we will consider the followingsequence of time-frames:. In the short run, both factors are completely specific to their initial sectors of employ-ment. (i.e. both factors are used to produce both goods, but in the short run it isimpossible to relocate the factors that are currently in use for production)• In the medium run, capital is specific but labor can relocate.• In the long run, both factors are mobile across sectors.• In each run, the prices of factors adjust to equilibrate the factor markets.(a) Suppose there is a change in the rest of the world that causes a fall in the price ofcomputers relative to wheat. In this exercise you will consider the effects of the changein the relative price of computers to wheat on the real income of the owners of the factorsof production in the Home Country. Reproduce and complete Table 1. Write whetherthe owner of that factor is a winner or loser from the change in the relative price ofcomputers to wheat. In the case of ambiguity, please provide a brief explanation.

Given information ; There are 2 goods: Computer and Wheat The computer is capital-intensive and…

There are two goods, Computers and Wheat, and two factors of production, capital and labor. Production in both sectors satisfies constant returns to scale. Production of computers is relatively more capital-intensive. Both input and final goods markets are competitive. Goods are freely traded internationally, but factors are immobile across countries. We will focus our analysis on the Home country. In the initial equilibrium, the Home country produces both computers and wheat, but only exports wheat. In our analysis, we will consider the following sequence of time-frames:

There are two goods, Computers and Wheat, and two factors of production, capital and labor. Production in both sectors satisfies constant returns to scale. Production of computers is relatively more capital-intensive. Both input and final goods markets are competitive. Goods are freely traded internationally, but factors are immobile across countries. We will focus our analysis on the Home country. In the initial equilibrium, the Home country produces both computers and wheat, but only exports wheat. In our analysis, we will consider the following sequence of time-frames:

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter13: General Equilibrium And Welfare

Section: Chapter Questions

Problem 13.6P

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