8. (L4) Numerical Example of Specific Factor Model.

Manufacturing Sector:

Sales revenue: PMQM=$100

Payment to labor: WLM=$20

Payments to capital: RKK= $80

Agriculture Sector:

Sales revenue: PAQA= $100

Payment to labor : WLA= $50

Payment to land: RTT= $50

Manufacturing: Percentage decreases in price PM/PM=10%

Agriculture: Percentage does not change in price PA/PA=0%

Both industries: Percentage decreases in the wage W/W=5%

(a) Calculate out the change on the Rental for Capital (RK/RK) and the change on the

Rental for Land (RT/RT) under the following model.

(b) Determine the relationship between the value ofPM/PM,W/W,RK/RK,RT/RT, 0. Is itP

consistent with the Specific-Factor Model's prediction?