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Consider an offshoring model just like that shown in Figure 7-1, in which the relative wage of low- skilled labor to high-skilled labor is
Consider an offshoring model just like that shown in Figure 7-1, in which the relative wage of low- skilled labor to high-skilled labor is lower in Foreign than in Elome and the costs of capital and trade are uniform across production activities. a. Suppose that Ilome uniformly increases the tariff level it applies to imports of all goods and services from Foreign. How does this affect the slicing of the value chain? b. Draw relative labor supply and demand dia- grams for Ilorne and Foreign showing the effect of this change. VI'h)t happens to the relative wage in each country? c. Suppose instead that the Home country requires that low-skilled labor in Foreign be paid a min- imum wage that is higher than its current wage (but still less than what low-skilled labor earns at Ilome). How does this affect the slicing of the value chain, and what happens to the relative demand for skilled labor in each country? d. Continuing from part (c), suppose that the minimum wage for low-skilled labor in Foreign is high enough that the relative wage of low-skilled/high-skilled labor in Foreign exceeds that in Home. Under these circumstances, what goods on the value chain will Home choose to offshore to Fo eicn>
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