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Q. Suppose the relative price of good 1 falls relative to the price of. What happens to the wage rate?
Answer: The labour component of the price of 1 is bigger than that of product 2. Therefore a fall in the comparative price of 1 will lower the demand for labour and will result in a decrease in the wage rate.
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Q.. "A good cannot be both land- and labor-intensive." Discuss. Answer: In a two good or two factor models for instance the original Heckscher-Ohlin framework and the factor
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diagram
Q. Suppose the U.S. government (but not Europe) offers a $10 million subsidy? Answer: In this case Airbus would make a decision not to enter the market since it knows Boeing
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