Question
This is the general instructions given. Use graphical analysis and detailed economic reasoning to interpret empirical evidence and/or to show your statements following the methods
This is the general instructions given. Use graphical analysis and detailed economic reasoning to interpret empirical evidence and/or to show your statements following the methods and contents of the lectures about the Factor specific model. Complete the analysis with appropriate assumptions if needed and proofs of theoretical propositions. Graphical analysis is requires to support the answer.
In the (Standard) Specific Factors Model of a small open economy that initially exports good X, analyse the effects of a fall in the price of good Y, holding the price of good X constant on
- outputs of the goods, X and Y,
- the real wage of labor,
- the real rental price of capital in the X industry, and
- the quantity of X exported.
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