D Problem Set 5 F22 updated.pdf x + X -> C File | C:/Users/sohee/OneDrive/Desktop/Problem%20Set%205%20F22%20updated.pdf . . of 2 Q + | Page view A" Read aloud T Add text Draw Highlight Erase | & | 6 9 relative demand for skilled workers has increased within all sectors in developed countries in recent decades. 2 Offshoring Consider the following model of offshoring. In order to produce one electric vehicle, Ford needs to perform exactly once each of three activities: Research and Development, Battery Production, and Assembly. Each activity uses Skilled labor and Unskilled labor as given in the table below. Ford can perform each activity either in the US or in Mexico. Wages for Skilled and Unskilled workers in the US and in Mexico are, respectively: wg = 18, wy = 12, wg = 14, wy =7. Offshoring is costly: if an activity is performed in Mexico then there is an additional cost of x that Ford needs to pay (you can think of those costs as representing transport costs or losses in efficiency from conducting O business far from the company's headquarters). + Assembly Component Prod. Research & Dev Skilled labor Iled labor 7 5 2 1. Suppose x = 35%. (a) Which activities are performed in the US and which are offshored to Mexico? (b) What is the ratio of Skilled labor to Unskilled labor Ford employs in each country? 2. Now suppose that Joe Biden enacts a Buy American plan that makes offshoring less attractive so that the total cost of offshoring to Ford becomes x = 50% (a) Which activities are now performed in the US and which are now offshored to Mexico? (b) What is the ratio of Skilled labor to Unskilled labor Ford employs in each country? (c) How does the increase in offshoring cost affect the relative demand for skilled workers in each country? A 8 . C Partly cloudy Q Search ~ ENG 1 0 4:47 PM 11/25/2022Problem Set 5 F22 updated.pdf x + X File | C:/Users/sohee/OneDrive/Desktop/Problem%20Set%205%20F22%20updated.pdf . . 2 of 2 Q + | 0 Page view A Read aloud T) Add text | Draw Highlight Erase | 8 | 6 9 3 The Gravity Equation The United States, Germany, and China are among the world's largest producers. To answer the following questions, assume that their markets are monopolistically competitive, and use the gravity equation with B = 93 and n = 1.25. Real GDP in 2021 ($ billions) Distance from the United States (miles) + China 15,802 7,245 Germany 3,535 4,885 United States 20,339 1. Using the gravity equation, compare the expected level of trade between the United States and Germany and between the United States and China. 2. The distance between Beijing and Berlin is 4,571 miles. Would you expect more trade between China and Germany or between China and the United States? Explain what variable (i.e., country size or distance) drives your result. 503 A 8 . C Partly cloudy Q Search ~ ENG 1 0 4:47 PM 11/25/2022