# Calculate and compare the skill/unskill ratio of production in the two countries before and after the fall in transport costs

###### This question refers to income distribution This question refers to income distribution Question 1. This question refers to income distribution. (1) what is a Lorenz curve? Draw one, labeling the axes (2)Explain why a Lorenz curve can never lie to the left or above the 45 degree line (3)Using a Lorenz curve diagram, explain how to calculate the Gini coefficient 2. What is the Multidimensional Poverty Index and how is it a more improved measure of poverty? 3. How can you encourage people in developing countries to have fewer children? 4. Explain the reasons for the hidden momentum of population growth and state its implication for population levels. 5 what is meant by the demographic transition? What are the differences in the demographic transition between the current developed economies and developing countries? 6. Suppose the rural wage is \$1 per day. Urban modern sector employment can be obtained with 5 probability and pays \$2 per day. Will there be any rural-urban migration? Explain your reasoning, stating explicitly any simplifying assumptions, and show all work. 7. point out the main differences in job conditions and worker characteristics between the urban formal and informal sectors. 8. Describe some of the benefit and costs associated with the emergence of large cities in developing countries. 9. What is human capital and why is it crucial to expand human capital as part of the development process. 10. What are the critical health challenges facing developing countries today and what measures are being taken to confront these challenges? Explain your answer. This question refers to income distribution
September 12, 2020
###### Summarizes the reading by highlighting the main points, identifying the major arguments.
September 12, 2020

Fall 2013
Homework 4: Due in Class, October 22, 2015
Problem 1: (Offshoring) A good is produced using three production activities (a, b, and c) that
each use skilled and unskilled labor. The table below shows the number of skilled and unskilled
workers needed to produce one unit in each production stage.
A
b
c
Skilled labor
1
2
3
Unskilled labor
4
3
2
There are two countries Home (H) and Foreign (F). The skilled worker wage is \$4 in H and \$5
in F. The unskilled worker wage is \$2 in H and \$1 in F. Transport costs of \$2 per unit must be
added to cost of a production stage if that production stage is outsourced to F.
1a.
Given this information, which production activities are done in which countries?
1b.
If the transport cost falls to zero, what happens to the location of production of each stage
(assume that the wages don’t change).
1c.
Calculate and compare the skill/unskill ratio of production in the two countries before
and after the fall in transport costs. What has happened to relative demand for skilled
labor in each country?
Problem 2: (Monopolistic Competition) A firm located in Home is making a variety of a
differentiated good in a monopolistically competitive industry. The firm needs 20 workers to
maintain its plant (fixed cost) and one worker per unit of output (marginal cost). Each worker
costs \$5.
2a.
In autarky, the firm sells 10 units and is breaking even. What price is it charging?
2b.
Home goes from autarky to free trade. In the new long-run equilibrium, the firm charges
\$10 per car. How has the firm’s productivity (output per worker) changed?
2c.
Explain, using the appropriate diagram, how trade caused the output and price charged by
the firm to change.