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In the Home country, workers () can be assigned for the design of video game ( ) or farming ( ). Suppose there are number
In the Home country, workers () can be assigned for the design of video game ( ) or farming ( ). Suppose there are number of workers, then we have = . Besides labour, there are two more factor inputs: capital () is specific to video game design, while land () is specific to farming. a. Draw the labour demands for video game design and farming in a single diagram, with the amount of workers used in video game design measuring from left to right along the horizontal axis, and the amount of workers used in farming, moving in the reverse direction. Label the equilibrium wage to be . b. Assume that due to international trade, the price of agricultural product rises. Analyse the effect of increase in price of agricultural product on the allocation of workers between the two sectors. c. Comment on the real earnings of all three factors of input. That is to compute the changes of / , /, / , /, / , / where and are the nominal returns to capital and land respectively, and and are the prices for video games and agricultural product respectively
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