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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

During the 1980s, 1990s, and the first decade of the 21st Century, the United States experienced a significant inflow of capital from abroad. For example, Toyota, BMW, and other foreign car companies built auto plants in the United States.

  1. a. Using a diagram of the U.S. capital market, show the effect of this inflow on the rental price of capital in the United States and on the quantity of capital in use.
  2. b. Using a diagram of the U.S. labor market, show the effect of the capital inflow on the average wage paid to U.S. workers.

Subpart (a):

To determine
Impact of trade in the perfect competition.

Explanation

Figure -1 illustrates the impact of capital inflow to the equilibrium position.

In Figure -1, horizontal axis measures quantity of capital and vertical axis measures rent for capital. The economy is in equilibrium at point ‘e1’ where the demand curve intersects with the initial supply curve Supply 1...

Subpart (b):

To determine
Impact of trade in the perfect competition.

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