Why do some low-wage countries, such as China, pose a threat to manufacturers in industrial countries, such as the United States, whereas other low-wage countries, such as Haiti, do not?

Answer Problems 9 to 11 using the chapter information for Home and Foreign.

9.

a. Suppose that the number of workers doubles in Home. What happens to the Home PPF and what happens to the no-trade relative price of wheat?

b. Suppose that there is technological progress in the wheat industry such that Home can produce more wheat with the same amount of labor. What happens to the Home PPF and what happens to the relative price of wheat? Describe what would happen if a similar change occurred in the cloth industry.

10.

a. Using Figure 2-5, show that an increase in the relative price of wheat from its world relative price of will raise Home’s utility.

b. Using Figure 2-6, show that an increase in the relative price of wheat from its world relative price of will lower Foreign’s utility. What is Foreign’s utility when the world relative price reaches 1, and what happens in Foreign when the world relative price of wheat rises above that level?

LO.1