ECON 370 Homework 5 Suppose Home uses only capital and labor for production of two goods, computers and shoes. There are a total 100 workers and 100 units of capital in the economy. Computers use 2 units of capital for each worker, so that Kc = 2 * Lc, whereas shoes use 0.5 unit of capital for each worker, so that Ks = 0.5 * Ls. a. Solve for the amount of L. and K used in each industry. b. Suppose there is an inflow of 25 workers in the economy due to immigration, keeping total capital constant at 100. Solve for the amount of L. and K used in each industry. c. Suppose instead there is an inflow of 25 units of capital in the economy due to FDI, keeping total labor constant at 100. Solve for the amount of L and K used in each industry. Suppose Mexico treceives an inflow of FDIL. There are two factors (labor and capital), and two sectors (Food and Televisions). Televisions are capital intensive goods and Food is labor - intensive. a. Using a box diagram show how the inflow of FDI is going to affect the economy in the long run. Point out the pre- and post- FDI allocation of L and K in the Food and Televisions sectot. b. How does factor earnings (Wage and Rentals on Capital) change due to the inflow of FDI? Explain. c. What happens to the output of each good? Show and explain using a graph. 3. The figure below is a supply and demand diagram for the world labor market. Starting at points A and A*, consider a situation where some Foreign workers migrate to Home, but not enough to reach the equilibrium with full migration (point B). a. Are there gains that accrue to the Home country? If so, redraw the graph and identify the magnitude of the gains. If not, say why not. b. Are there gains that accrue to the Foreign country? If so, again show the magnitude of these gains in the diagram. Wage Foreign Wage Home Wage L World Labor Force