Naked Economics Chapter 4
CHAPTER 4 Problems 1, 3, 4, 5 and 7:
1. “In the United States where land is cheap, the ratio of land to labor used in cattle raising is higher than that of land used in wheat growing. But in more crowded countries, where land is expensive and labor is cheap, it is common to raise cows by using less land and more labor than Americans use to grow wheat. Can we still say that raising cattle is land intensive compared with farming wheat? Why or why not?
Perhaps, but the argument implicit above misinterprets the concept of factor intensity. If a crowded country has a lower wage-rental ratio (w/r), then ALL of their industries should use a more labor-intensive production process than the same industry would use in the US, where w/r …show more content…
Cattle is land intensive in other countries too if the ratio of land to labor in cattle production exceeds the ratio in wheat production in that country. A comparison between another country and the United States is not relevant.
Can you use Figure 4-4 to explain the observation in the question above?
3. “The world’s poorest countries cannot find anything to export. There is no resource that is abundant – certainly not capital nor land, and in small poor nations not even labor is abundant.” Discuss.
This argument misinterprets the concept of factor abundance. What matters is not the absolute abundance of factors, but their relative abundance. Poor countries have an abundance of labor relative to capital when compared to more developed countries.
4. “The US labor movement – which mostly represents blue–collar workers rather than professional and highly educated workers – has traditionally favored limits on imports from less-affluent countries. Is this a shortsighted policy or a rational one in view of the interests of union members? How does the answer depend on the model of …show more content…
The adjusted model has been found to be more successful than the unadjusted model at explaining the pattern of trade between countries. Factor-price equalization concepts would apply to the effective factors. A worker with more skills (or access to better technology) could be considered to be equal to two workers in another country. Thus, the single person would be two effective units of labor. Thus, the one high-skilled worker could earn twice what lower skilled workers do and the price of one effective unit of labor would be
1. “In the United States where land is cheap, the ratio of land to labor used in cattle raising is higher than that of land used in wheat growing. But in more crowded countries, where land is expensive and labor is cheap, it is common to raise cows by using less land and more labor than Americans use to grow wheat. Can we still say that raising cattle is land intensive compared with farming wheat? Why or why not?
Perhaps, but the argument implicit above misinterprets the concept of factor intensity. If a crowded country has a lower wage-rental ratio (w/r), then ALL of their industries should use a more labor-intensive production process than the same industry would use in the US, where w/r …show more content…
Cattle is land intensive in other countries too if the ratio of land to labor in cattle production exceeds the ratio in wheat production in that country. A comparison between another country and the United States is not relevant.
Can you use Figure 4-4 to explain the observation in the question above?
3. “The world’s poorest countries cannot find anything to export. There is no resource that is abundant – certainly not capital nor land, and in small poor nations not even labor is abundant.” Discuss.
This argument misinterprets the concept of factor abundance. What matters is not the absolute abundance of factors, but their relative abundance. Poor countries have an abundance of labor relative to capital when compared to more developed countries.
4. “The US labor movement – which mostly represents blue–collar workers rather than professional and highly educated workers – has traditionally favored limits on imports from less-affluent countries. Is this a shortsighted policy or a rational one in view of the interests of union members? How does the answer depend on the model of …show more content…
The adjusted model has been found to be more successful than the unadjusted model at explaining the pattern of trade between countries. Factor-price equalization concepts would apply to the effective factors. A worker with more skills (or access to better technology) could be considered to be equal to two workers in another country. Thus, the single person would be two effective units of labor. Thus, the one high-skilled worker could earn twice what lower skilled workers do and the price of one effective unit of labor would be