| Suppose that computers use 2 units of capital for each worker, so that KC = 2 ?¢ LC, whereas shoes use 0.5 units of capital for each worker, so that KS = 0.5 ?¢ LS. There are 100 workers and 100 units of capital in the economy. a. Solve for the amount of labor and capital used in each industry. Hint: The box diagram shown in Figure 5-7 means that the amount of labor and capital used in each industry must add up to the total for the economy, so that: KC + KS = 100, and LC + LS = 100 Use the facts that KC = 2 ?¢ LC and KS = 0.5 ?¢ LS to rewrite these equations as: 2 ?¢ LC + 0.5 ?¢ LS = 100, and LC + LS = 100 Use these two equations to solve for LC and LS, and then calculate the amount of capital used in each industry using KC = 2 ?¢ LC and KS = 0.5 ?¢ LS. b. Suppose that the number of workers increases to 125 due to immigration, keeping total capital fixed at 100. Again solve for the amount of labor and capital used in each industry. Redo the calculations from part (a), but using LC + LS = 125. c. Suppose instead that the amount of capital increases to 125 due to FDI, keeping the total number of workers fixed at 100. Again solve for the amount of labor and capital used in each industry. Redo the calculations from part (a), using KC + KS = 125. d. Explain how your results in parts (b) and (c) are related to the Rybczynski theorem. |
