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    Problem Set 5.3 Feenstra Advanced International Trade

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    This document summarizes the solution to problem set 5.3 from an international trade textbook. It includes: 1) Deriving the standard Stolper-Samuelson results by totally differentiating equations for industry prices equal to marginal costs. 2) Showing full employment conditions derived from factor demands per unit of industry output and how this implies the Rybczynski theorem. 3) Noting that changing fixed costs will not impact the results, as factor prices are set independently, though full employment conditions would still hold with modified factor demands.

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    Problem Set 5.3 Feenstra Advanced International Trade

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    solutions_international_trade
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    This document summarizes the solution to problem set 5.3 from an international trade textbook. It includes: 1) Deriving the standard Stolper-Samuelson results by totally differentiating equations for industry prices equal to marginal costs. 2) Showing full employment conditions derived from factor demands per unit of industry output and how this implies the Rybczynski theorem. 3) Noting that changing fixed costs will not impact the results, as factor prices are set independently, though full employment conditions would still hold with modified factor demands.

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    This document summarizes the solution to problem set 5.3 from an international trade textbook. It includes: 1) Deriving the standard Stolper-Samuelson results by totally differentiating equations for industry prices equal to marginal costs. 2) Showing full employment conditions derived from factor demands per unit of industry output and how this implies the Rybczynski theorem. 3) Noting that changing fixed costs will not impact the results, as factor prices are set independently, though full employment conditions would still hold with modified factor demands.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    4K views1 page

    Problem Set 5.3 Feenstra Advanced International Trade

    Uploaded by

    solutions_international_trade
    This document summarizes the solution to problem set 5.3 from an international trade textbook. It includes: 1) Deriving the standard Stolper-Samuelson results by totally differentiating equations for industry prices equal to marginal costs. 2) Showing full employment conditions derived from factor demands per unit of industry output and how this implies the Rybczynski theorem. 3) Noting that changing fixed costs will not impact the results, as factor prices are set independently, though full employment conditions would still hold with modified factor demands.

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    Download as PDF, TXT or read online from Scribd
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    Solution to problem set 5.

    3 in Advanced International Trade by Feenstra


    Found on www.easytradesolutions.wordpress.com

    Problem set 5.3

    a)

    Using MR=MC for both industries we have:

    p1(1-1/σ) = θp1 = c1(w, r),


    p2 = c2(w, r).

    In the first of these two equations above, we use the assumption of a large number of goods so that the
    elasticity of demand equals σ, with θ=(σ-1/σ). When we totally differentiate these equations, we will obtain
    the standard Stolper Samuelson results.

    b)

    The full-employment conditions can be derived from demands for factors from one unit of industry
    output Ny1, where N is the number of firms in industry 1:

    a1L = L1/Ny1 = [(c1wy1N + αc1wN)/Ny1] , with c1w = ∂c1/∂w

    so that,

    a1L = c1w(1 + α/y1), and a1K = c1r(1 + α/y1).

    Then the full-employment conditions are written as,

    a1L(Ny1) + a2Ly2 = L
    a1K(Ny1) + a2Ky2 = K

    Then Rybczynski Theorem holds for changes in (L, K) affecting (N, y2), with y1 fixed.

    c)

    Changing the fixed costs will have no impact on the above results. Given that factor prices are determined
    in (a), we need to modify the definition of the demand for factors in (b), but analogous full-employment
    conditions will still hold.

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