International Economics Chapter 5 Problem Set 1. Consider a long-run model for a country producing two products (digital cameras and baskets) using two factors (capital and labor). Assume camera production is capital intensive. Use a box diagram to illustrate the effects of an outmigration of labor (in other words, labor supply decreases) on output in each industry. What happens to the wage-to-rental-rate ratio? (6 pts) 2. Suppose a country has two specific factors, land and capital. Land is an input in the production of corn. Capital is used only in the production of rockets. A third factor, labor, is mobile between the two sectors. Holding all else constant, what is the effect of an increase in the amount of available capital on the real return to capital and labor? What happens to corn and rocket production? (4 pts)
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