Principles of Microeconomics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165905
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 18, Problem 8PA
Subpart (a):
To determine
Impact of trade in the perfect competition .
Subpart (b):
To determine
Impact of trade in the perfect competition.
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Q. 4
The Services sector has been steadily rising in relative importance in GDP of the United States, as well as elsewhere around the world. Since "services" have been identified as "non-tradable" (e.g., it is difficult to export haircuts), it may be argued that this trend will likely slow the rapid growth in international trade. Discuss.
Q1. Suppose that Brazil initially has a higher capital rental rate (r) than the United
States.
a. What would be the direction of foreign direct investment (FDI)?
b. Use a world-capital-market graph to show the effects of FDI on the two countries'
rental rates of capital, GDP, and return to labor owners.
c. Identify the net change in world output in the above graph.
d. How would the wage rate and the rental rate of capital in the recipient country be
affected in the long run?
e. Discussion: what other effects could FDI cause in the recipient and source countries
that are not captured in the model?
Discuss the three potential factors that may motivate a firm to invest abroad.
Chapter 18 Solutions
Principles of Microeconomics, 7th Edition (MindTap Course List)
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