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Consider the specific-factors model. As a result of trade between the two countries, price of agriculture increases and price of manufacturing good remained the same

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Consider the specific-factors model. As a result of trade between the two countries, price of agriculture increases and price of manufacturing good remained the same in the Home country. Use the following information about the Home country to answer the questions below. Manufacturing: Sales revenue = PM . QM = 150 Payments to labor = W . LM = 50 Payments to capital = RK - K =100 Percentage change in Price of manufacturing goods = -10% Agriculture: Sales revenue = PA . QA = 150 Payments to labor = W - LA = 50 Payments to land = RT - T = 100 Percentage change in price of agricultural goods = 20% Assume that the wage rate has also increased by 10% Note that in each sector percentage change in rental rates are given as: Rental rate of land in agric., AR R (Pa. Qa AW W . La Rental rate of capital in manuf, AR APm Pm. Qm AW W . Lm R Pm R. K W R .K a. Calculate the impact of the increase in the price of agricultural goods on the rental rate of land? SHOW YOUR WORK! b. Calculate the impact of the increase in the price of agricultural goods on the rental rate of capital? SHOW YOUR WORK! C. Explain what has happened to the real rental of land and why would the rental rate on land change in this way? d. Explain what has happened to the real rental of capital and why would the rental rate on capital change in this way? e For the agricultural sector, compare the percentage changes in price, wage, and rental rate on land. Which one is greater? Which one is smallest? Explain why

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