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2. In the Specific Factors Model RD-RS diagram analyze the effects of following independent shocks on PM. The domestic economy is land abun- dant, the
2. In the Specific Factors Model RD-RS diagram analyze the effects of following independent shocks on PM. The domestic economy is land abun- dant, the foreign economy capital abundant, F is the land specific good and M the capital specific good. Let M be manufactured goods and F food. (5) a. Technological changes raise marginal product of capital in the domestic economy. (5) b. Suppose consumers become aware M production creates more pollution than previously thought. All consumers are concerned about the environment. (5) c. An earthquake destroys part of the capital stock in the foreign economy. (5) d. For the shock in (a) explain the effect on world trade of M in a sentence. (5) e. For the shock in (b) explain the effect on world trade of F in a sentence
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