Writing #2: Please read Chapter 3: Sources of Comparative Advantage, in particular the Specific-Factors Model page 84-86 and the Exploring Further 3.1 The Specific Factors Theory in our eBook. I will also post/email you the file for this. Type up your answers to the following questions:

Specific-Factors Model: All questions refer to the eBook example (Exploring Further 3.1 The Specific Factors Theory in our eBook)

1. What are the two specific factors and the assumptions made about the specific factors in our eBook?

2. What is the mobile (non-specific) factor and the assumptions made about the mobile factor in our eBook?

3. Are there gains from trade for the United States as a whole? Why? Please explain.

4. What will happen to a worker’s nominal wage and real wage when trade causes the U.S. relative price of computers to go up? Explain using the case where P_Computer increases and P_Steel stays unchanged after trade compared to autarky. (Hint: nominal wage = MPL*P)

5. What will happen to a computer capital owner’s nominal rental and real rental when trade causes the U.S. relative price of computers to go up? Explain using the case where P_Computer increases and P_Steel stays unchanged after trade compared to no trade.

6. What will happen to a steel capital owner’s nominal rental and real rental when trade causes the U.S. relative price of computers to go up? Explain using the case where P_Computer increases and P_Steelstays unchanged after trade compared to no trade.

Does Trade Make the Poor Poorer?

7. Refer to Figure 3.3: Inequality of Wages between skilled and unskilled workers (page 87). Please use a relative demand and supply diagram of skilled and unskilled labor to answer the following questions. You will need to draw diagram for this question.

1. How an increase in exporting goods that require skilled labor affects the wage inequality in the United States
2. How international trade, offshoring and technological change affect the wage inequality?
3. How immigration of unskilled workers affects the wage inequality?
4. How education and training affect the wage inequality?

Please use the wage ratio (wage of skilled/wage of unskilled) on the vertical axis and the labor ratio (quantity of skilled workers/quantity of unskilled workers) on the horizontal axis.

Grading: each question is worth 10 points.