Question 3. (15 points) Consider an Economy A that produces two goods, avocados and trucks. We have the following data from Economy A: Avocados: Sales revenue = 250 Eamings of labor = 125 Eamings of capital = 125 Percentage increase in price after trade = 0% Trucks: Sales revenue = 250 Eamings of labor = 25 Eamings of capital = 225 Percentage increase in price after trade = 409%/ 3.1. Which industry is more labor-intensive? How do you know? (2 points) Avocados : Shere of revenue paid to labor is 125 260 100- 50% Trucks : hare of revenue faid to labor is 290 20 = 10%% Avocado traduction is more later intensive. 3.2. Given the percentage changes in output prices in the data provided, calculate the percentage change in the rental on capital. (6 points) R = 14 QA - WA = PQ - Why KA AR= APA QA-AWLA APT QT -SWAT KA KT OR = APA QA-SWLA - OH-QT- AW/ PA . QA - W.LA R. KA = PA. QA W-LA AR_ APA-QA-AWLA - AART -AWAY R. KA R.KT AR sW / W.LAY R PARKA ) (W) RKA R KT w ) RKT = 0 250 125 250 (25 125 W / 125 = 40% 725 225 OW w 8 AW 9 w OK - OW 5 AR 1 R W R 2 3.3. How does the magnitude of this change compare with that of labor? (3 points) From calculation in 3.2, the magmatales of the changes are equal ( with the opposite sign ) W 2 , R 2 3.4. Which factor gains in real terms, and which factor loses? Are these results consistent with the Stolper-Samuelson theorem? (4 points) Increase in capital rental is , ( on 50%% ) which is greater than the fonce changes in both industries > capital gains in recel terms Similarly, decrease in wages is 50 %% price If avocado staged the same forice of trucks increased labor loses in real terms This is consistent with Stopper-Scenceelson theorem. In the long reen, with mobile factors an increase in relative price of a good will cause the real earnings of labor and called to move in oppose adorechins The recell earnings of a feechor used intensively in the industry whose relative frick went up will increase