ECON 441 Midterm: Exam 2 Summer 2003 Solutions
Document Summary
Use the usual specific factors diagram to help you get your results, together with other relationships that you know must hold, but also be sure to say explicitly what you have found and why. [it has been pointed out to me that 14+4 20, and i have confirmed this with my calculator. I have therefore given everyone a free 2 points on this question. ] Holding the price of good y constant, the rise in price of good x shifts the. Vmplx=pxmplx curve upward, as shown below: w w w3 w2 w1 pymply px"mplx pxmplx. Thus, the rise in px causes more labor to be employed in the x sector (lx rises) and less in the y sector (ly falls). These changes in turn, since capital stocks in the sectors are fixed in the specific factors model, mean that the ratios of capital to labor, on which marginal products depend, change as follows:
