LK, represents the total amount of labor and capital available in the economy, P, P denote the prices

Transcription

1 Fall 1 Econ 455 Answers - Proble Set 3 Due Noveber 8, 1 Harvey Lapan 1. Consder a spled verson o the Heckscher-Ohln odel wth the ollowng technology: To produce ood: 1 unt o labor and 3 unts o captal are requred or each unt o F. To produce anuactures (M): 3 unts o labor and 1 unt o captal are requred or each unt o M. LK, represents the total aount o labor and captal avalable n the econoy, P, P denote the prces o output and W, R denote the prces o labor and captal respectvely. a) Fnd producton costs and output prce n ters o actor prces. The hnt gves the answer or anuactures; jt apply the sae reasonng to ood. 3 3 ; Pr ( ) 3 TC M Q W R MC M W R ce M MC P W R For ood, each unt o output requres one worker and 3 unts o captal; hence: 3 3 ; Pr ( ) 3 TC ood Q W R MC ood W R ce F MC P W R. Fnd actor prces n ters o output prce. Show how an ncrease n P aects W,R. Fro above: P 3 W R; P W 3R. Ths s lke two lnear equatons n two unknowns; one can nvert ths relatonshp and solve or R: P 3W R R P 3W ; substtute ths nto the relatonshp or ood: 3P P P W 3R W 3P 3W 3P 8W or W 8 3P P 3P P Use the soluton or W to solve or R: R P 3W P P P 3P P W ; R 8 8 How does an ncrease n P aect actor prces?. Suarzng: W 1 R P 3P ; 1 ; P 3 P R 3P P R P c 1 6 Th an ncrease n the prce o ood lowers the return to labor and rases the real return to captal (snce ood s captal-ntensve and anuactures are labor-ntensve). Moreover, the return on captal ncreases by ore (n % ters) than does the prce o ood so the real return on captal ncreases n ters o ether ood or anuactures. 1

2 b) Fnd the producton possblty ronter (pp). Let Q, Q denote the outputs o good M and F, respectvely. The resource constrants are: Labor: (1) 3Q Q L snce the technology ples: L 3Q and L Q Captal: () Q3Q K snce the technology ples: K Q and K 3Q The ollowng gure shows the producton possblty ronter or ths econoy; the ponts on, or below, the lne labeled labor constrant nsure that labor eployed s no larger than avalable labor (wth ull eployent on that lne), whle the lne labeled captal constrant has the sae nterpretaton. For ths spled econoy, the only output level where both nputs are ully eployed s where the two lnes ntersect, at pont V, where output s: 3L K 3K L Q ; Q 8 8 Food Output L Labor constrant Z K/3 New captal constrant V Captal constrant L/3 K Manuactures The easble producton set s the regon bounded by: {,(K/3),V,(L/3)}, and the producton possblty ronter s the lne segents descrbed by: {(K/3),V,(L/3)}. ()Show how an ncrease n the supply o captal shts the pp. An ncrease n captal shts the captal constrant outward, as shown by the dotted lne n the gure. The pont Z represents the new output level where both actors are ully eployed (n ths sple verson, there s a unque producton pont that represents ull eployent o both nputs).

3 Note that an ncrease n K leads to an ncrease n output o the captal ntensve good (F) and a decrease n output o the labor ntensve good as descrbed n class and n the text. c) Assung the Japan s captal abundant and the US s labor abundant (but they have dentcal tastes and technology), copare autarky prces, then nd the pattern o trade and dscs ts consequences. As shown above, gven prces, an ncrease n the supply o captal (n Japan) ncreases output o the captal ntensve good (F) and decreases output o the labor ntensve good (M). At gven prces, ths wll create an excess supply o good F and an excess deand or good M. Hence, as the supply o captal ncreases wthn an econoy, the equlbru prce o the captal-ntensve good (ood) decreases. Slarly, an ncrease n the supply o labor (US) caes the equlbru autarky relatve prce o the labor ntensve good (anuactures) to all. Hence, the autarky relatve prce o good M wll be hgher n Japan than n the US. Ths, ro part (a) ples that the wage rate wll be hgher n Japan and the return on captal wll be hgher n the US (.e., Japan US P P n autarky W W and R R P P Japan US Japan US Th, wth trade, the US wll export M (the labor-ntensve good) and port F (the captal-ntensve good). As a result o trade, P P rses n the US and alls n Japan. But, ro (a), ths ples that the wage rate rses n the US and alls n Japan, whle the return on captal (R) alls n the US and rses n Japan. Fnally, ree trade equalzes coodty prces and both goods are produced n both countres, t t equalze actor prces (see equatons deternng actor prces n (a)), provded technology s the sae n the two countres. Ths s the actor prce equalzaton theore. d) Mody the above odel by assung Japan s productvty n both sectors double, whle US technology reans unchanged. In Japan: Food requres: 1/ unt o labor and 3/ unts o captal or each unt o ood produced. Manuactures requres: 3/ unts o labor and 1/ unt o captal or each unt o M produced. ) Show how doublng o productvty n Japan aects autarky output prces and actor prces. In Rcardan ters, whle Japan has an absolute advantage (technologcally) n both goods, there s no coparatve advantage due to technology. To see ths speccally, we can re-derve the producton possblty ronter or Japan, wth the new technology: Labor: (1a)3 Q1 Q L as the technology ples: L 3Q and L 1Q Captal: (a)1 Q 3 Q K as the technology ples: K 1Q and K 3 3L K 3K L Ths yelds the ull eployent pont o: Q ; Q 4 4 Th, at ull eployent, output o both goods double and th the relatve supply s unchanged. Hence, deand or both goods also doubles (becae ncoe doubles) so that relatve deand s Q 3

4 unchanged, the doublng o productvty n both sectors wll not aect autarky relatve goods prces and hence wll not aect the pattern o trade between the US and Japan. Turnng to nput prces, ng the logc o part (a) o the answer, or Japan we have: 3 1 ; 1 3 P MC W R P MC W R ; solvng or nput prces (n Japan) n ters o output prces we have: 3P P 3P Japan Japan ; P W R, whereas or the US (ro part a): 4 4 3P P W ; 8 3P P R 8 Th, we see that gven output prces the doublng o productvty n both sectors n Japan leads to a doublng o the real return to both actors. ) Wll ree trade equalze actors prces and reove the pressure or actor graton? Snce the doublng o productvty n both sectors n Japan leaves relatve autarky prces unchanged, t ollows that the pattern o trade s stll deterned by actor endowents so Japan wll export ood and the US anuactures. Trade stll lowers the real return to labor (rases the real return to captal) n Japan snce t lowers the prce o the labor-ntensve good, whereas the opposte happens n the US. However, trade wll not lead to actor prce equalzaton becae technologes are derent. As the above exaple shows, trade equalzes goods prces, then the real return to both actors wll be twce as hgh n Japan as n the US. Th, there wll stll be pressure or actor oveents.. (Factor oveents) There s a sngle good (e.g., ood), produced ng land and labor. The aount o land n a country s xed; labor ay be oble across countres. US and Mexcan technology and resources are: US: Mexco: Q 64 T L ; T 15; L Q 5 T L ; T 64; L 64 a) For each country, nd and sketch the labor deand curve. Also, calculate the equlbru wage, return on land and per capta ncoe n each country (all easured n ters o output) Q 64 T 64 T deand 64P US : MPLabor P W L T L 3 L 3 L 3W PQ WL 18 L Q US land rent: R P P T 3 T T 4

5 Snce there s only one good, you can set P 1, snce GNP, wages and rental rates are all easured n ters o ths good. Evaluatng at T 15, L 64 : W ; 3 Slarly or Mexco: R Q 5 T 5 T deand 5 Mexco : W L T L 3 L 3 L 3W Mexcan land rent: Q 5 L R T 3 T Evaluatng at T 64, L 64 : W ; R Below you see the labor deand curve or the US, and how graton shts the doestc labor supply. The labor deand curve or Mexco looks slar; though egraton ro Mexco (to the US) would reduce the labor supply n Mexco. (w/p) A L s L d L s +I (w/p) e (w/p) E G L Wage Deternaton The returns to land can be easured, n ths dagra, as the consuer surpl snce we can thnk o landowners as rentng labor, and hence a lower labor prce benets landowners. In the dagra land 5

6 rents, at the ntal wage, would be gven by {A,E,(w/P) e }; wages all, as shown, land rents ncrease by the area {(w/p) e,e,g,(w/p) } b) Assue the US allows soe Mexcan workers to enter. Let V stand or the axu nuber o guest workers the US allows (the nuber o vsas), and let I represent the actual nuber who choose to coe, where I V. The US labor orce becoes L I and the Mexcan labor orce L I.. Show how ()US wages, ()the return on US land, ()Mexcan wages, (v)the return on Mexcan land; and (v)world output are deterned as a uncton o the nuber o Vsas (V). Assung workers wll want to coe to the US (and only ) US wages are hgher than Mexcan wages, then the nuber who would coe there were no restrctons s deterned by choosng the nuber o grants (I) to equalze wages T 5 T Fro earler, wages are deterned by: W ; W 3 L I 3 L I Where, L I, L I are the nuber o workers. Settng wages n L L s the populaton, and the two countres equal to each other, and ng the values or land, we have T 5 T 64 T T W W 3 L I 3 L I 5 L I L I L I L I 9I 8L L 448; 15 L I L I * 448 I Th, or V, US wages wll be hgher and all the vsas wll be ed. Hence T T W W ; ; 53 3 L V V 9L V W T T W ; 53 3 L V V 9L V US wages all and Mexcan wages rse as the nuber o vsas ssued ncrease, untl wages are equalzed, beyond whch ssung ore vsas wll not atter. For the return on land, opposte results hold: 6

7 R L V L V R ; ; 3 T V T L V L V R R ; 3 T V 9 T Fnally, total output ncreases as long as US wages are hgher; th: L V L V L V L V T Q Q Q T L V T L V Q V T L V L V 8L V L V 9V 8L L Whch s the sae condton we saw above to nsure US wages are hgher than Mexcan wages... As above, the nuber o vsas s set very hgh, then not all wll be ed and wages wll be equalzed. Calculate how U.S. ncoe, Mexcan ncoe, and world output change as V ncreases. Fro the proble set: Y Q W V 64 T L V W V; T 15; L 64; I V Y Q W V 5 T L V W V; T 64; L W V V Y T W W V 3 L V V V 3 5 W V W W V W W Y T W W V 3 L V V V W as V {o course, once wages are equalzed, ssung ore vsas wll have no eect} Th, snce the US pays the Mexcan workers ther argnal value product n the US (as the wage), havng ore workers coe n lowers the wage they receve and the US net ncoe rses as V ncreases. However, or Mexco, snce ther workers n the US receve the US wage, as ore Mexcans enter the US labor arket, that hurts Mexcan workers already there (reducng ther wage). Mexco s lke a onopoly seller o labor and would gan by placng ts own restrctons on egraton, provded 7

8 Y Mexcan workers n the US receve the US wage. (that s, or W W ). V We calculated n the prevo part that world output ncreases wth labor oveents as long as the argnal product o labor n the US s hgher than n Mexco. v. Suppose the U.S. governent auctons o the work vsas. P s the prce pad at aucton or each vsa, so Mexcans who work n the U.S. receve net ncoe o W P, whle Mexcans who stay n Mexco receve net ncoe o W. Show how the ollowng vary wth V: (1)P; ()U.S. net ncoe and (3)Mexcan net ncoe change as V ncreases. Ths s essentally the reverse o the prevo proble; Mexco gans by ncreasng V up to the pont where argnal products are equalzed, whle the US has an ncentve to restrct graton snce the prce o vsas s reduced as V ncreases ; Y Q W P V T L V W P V Y Q W P V 5 T L V W P V; Where P W W. Hence: Y 64 T L V W V; Y W W W W V W W V V V as Y Q W P V 5 T L V W V; Y V W W W V V Snce Mexcan workers n the US essentally receve the Mexcan wage, Mexco has no reason to lt out-graton but the US has an ncentve to lt graton. World output s axzed when there s ree labor oblty but that does not ean ndvdual countres don t have an econoc ncentve to restrct oblty. v. Does unrestrcted labor oblty axze US ncoe? Essentally dscsed above. Also, the grants becoe peranent resdents o the US so there are no wage payents that leave the country then graton rases US ncoe but wll lower per capta ncoe (paradoxcally, both orgnal resdents o the US and the grants can both be better o but stll per captal ncoe can all becae the enterng grants had a uch lower per capta ncoe n ther hoe country). 8

9 c) Suppose each worker n the U.S. receves or ree soe benets (e.g., edcal care or schoolng). Assue the guest worker pays no taxes. I a guest worker progra allows workers to reely choose where to work (and Mexco has no such benets or workers), wll ree worker oveent between the two countres axze total output o the two countres? I the Mexcan worker values the (edcal) benets at $B per year, then they wll copare: W B to W They wll grate to the US untl the total wage, ncludng benets, s equalzed across countres. Th, n equlbru they wll settle or a lower eployer wage they receve ree edcal benets ro the governent. Ths, n turn, eans n equlbru that the argnal product o labor wll be lower n the US, assung the wage pad by rs equals the (value o the) argnal product o labor. Hence, too uch labor oveent wll occur and world output s not axzed. 3. Consder a sall country (Ncaragua) wth the ollowng deand and supply curves or sugar: Supply = 6P s ; Deand = 4P s Ncaragua can export sugar at a gven world prce o: Ps 4. a) Show how: doestc prce, consupton and producton change as the export tar t ncreases. Calculate how consuer surpl, producer surpl, and governent tar revenue, and overall welare, change as t ncreases. Gven the world prce, the net revenue ro exportng or a r s 4 t ; ths wll be the doestc prce trade occurs. Snce the autarky prce s, or t the tar s prohbtve: there are no exports, and the doestc prce equals the autarky prce o. For t, we have: d d d P 4 t ; D 4P 4 4 t; S 6P 4 6 t; X S D 1t s s s Consupton ncreases, producton decreases and exports all as t ncreases. Fro the gure below, one can see that, due to the tar, producer surpl decreases by area {4,B,B,(4-t)}, consuer surpl ncreases by area: {4,A,A,(4-t)}. Tar revenue s area {A,K,J,B }. Th: PS 1 t 4 4 6t 4t 3 t ; CS 1 t 4 4 4t 4t t 1 1 TR tx t t t t s tar revenue. Producer surpl decreases wth the tar, consuer surpl ncreases (only t s relevant), whereas tar revenue ncreases wth the tar or t 1, and then decreases thereater. Overall: Welare TR PS CS 5t so that the tar lowers overall welare. Ths loss s the su o the areas o the two deadweght loss trangles {A,A,K} and {B,B,J} 9

10 P 4 A K J B 4-t A B S A E 4 4+4t 1 4-6t Fgure 1 4 D Q ) Even though the tar hurts Ncaragua copared to ree trade, t s stll better o wth the export tar then under autarky. The gan, copared to autarky, s area {A,B,E} pl the tar revenue {A,K,J,B }. Soe trade s better than no trade. ) I t, the tar s prohbtve and no trade occurs. b) Copare the doestc equlbru when t=1 to the case where there s no tar, but there s an export quota o 1 unts. Fro part (a), wth t=1,exports X 1t 1. Th, a quota o 1 and a tar o 1 have dentcal eects on doestc prce, consupton, producton and exports; and hence they have dentcal eects on consuer and producer surpl. The only possble derence s the tar revenue (whch s 1, under the tar); under the quota, exporters ake 1 on each unt exported (snce they can buy at the doestc prce, 3, and resell on the world arket at a prce o 4), and hence they wll earn excess prots o 1, unless the quota lcenses are auctoned o, n whch case the two polces are dentcal. I, or soe reason, the quotas were gven to oregn porters, then the revenue ro the tar s lost to the country, and so the quota, n that case, would be neror to the tar or the exportng country. c) Suppose the governent subsdzes exports at a rate o s per unt o port. Show how ths export subsdy aects the ollowng (see Fgure below): ()doestc prce doestc prce or both consuers and producers ncreases to {4+s} snce an exporter receves 4 ro the oregn buyer and s ro the governent. Hence, the doestc prce s less than {4+s} exporters wll try to export all doestc output, drvng up prce to {4+s}. ()Consuer surpl decreases - due to a hgher prce - by area next to deand curve between two s prces area {4,A,A,(4+s)} n the gure; hence: CS 4 4 4s 4s s 1

11 ()Producer surpl ncreases due to the hgher prce, by the area next to supply between two prces s area {4,B,B,(4+s)}. Hence: PS 4 4 6s 4s 3s (v)governent expendtures: Cost o subsdy s s*exports = area {A B ML}; exports are S D 1s,hence: Cost to governent = s 1s s 1s (v)ipact overall welare: CS PS Governent Expendtures = 5s, s Ths s area o two deadweght loss trangles, {A,A,L} and {B,M,B}. P 4+s A B S 4 L A B M E 4-4s s D Q. No export quota can orce exports to ncrease over the ree trade level so there s no quanttatve polcy that has the sae pact as an export subsdy.. Unlke the case o a tar, the export subsdy by encouragng too uch trade can ake Ncaragua worse o than under autarky the subsdy s hgh enough. d) I the goal s to ncrease doestc sugar producton, an export subsdy accoplshes ths by rasng doestc prce; but the export subsdy also caes doestc consupton to decrease. Wth a producton subsdy o 1, there s no change n consuer surpl copared to ree trade, whereas the change n producer surpl s the sae as wth a export subsdy o 1. Th, the welare consequences o a producton subsdy o 1: CS ; PS s 1 4s 3s 7 Subsdy Cost = 3 where output s 3 when subsdy = 1 11

12 Welare Loss = -3. For the export subsdy, wth s=1, the welare loss s 5. Th, the producton subsdy whch results n the sae level o doestc producton as the export subsdy has a lower welare cost becae we do not have the loss assocated wth the reducton n consupton. 4. (15 ponts extra credt) (More sophstcated verson o H-O odel). There are two goods (M and F) and two nputs (K and L). The producton unctons are: where Q K L ; Q K L K,L are the nputs (captal, labor) ed n sector M and K,L are the nputs ed n sector F. Let W denote the wage rate (prce o L) and R the rental rate (cost o ng K, captal). Fnally, let P, P denote the output prces o goods M and F, respectvely. (a) There are two ways to derve the cost uncton one by substtuton, and one by ng non-lnear prograng (whch nvolves ng the Lagrangan uncton). By substtuton: 1 1 Q K L. Solvng or labor yelds: L Q K Q K. Let Total costs are: 1 TC WL RK RK W Q K (1) Equaton (1) expresses total costs as a uncton o actor prces, output and captal nputs. Cost nzaton eans choose the captal nput that nzes ths expresson. Th: d TC dk R W Q K 1 1 () snce: d K dk K 1 A sucent condton or an nteror nu s that the rst dervatve o the uncton be zero and that the second dervatve be postve; t s readly seen that the second dervatve s postve. Solvng () or K yelds: 1 W (3) * W 1 K Q Q R R where * K denotes the soluton. Substtutng back or L yelds: * R L Q W 1 (4) Note that the choce o nputs depends on relatve actor prces, not absolute actor prces. Also, note that when 1, the nput e s proportonal to output. Fnally, substtutng back nto the cost 1

13 uncton (1) yelds nu costs: 1 * * * C Q W R WL RK W R Q,, where: 1 (you need to substtute and then sply the expresson; t s a bt tedo, but you should get the result above): Ths result can be checked becae the dervatve o the cost uncton wth respect to nput prce should gve you back the optal nput e. Hence: 1 * dc 1 W R W Q 1 Q dr R whch s * K. Slarly, derentatng wth respect to W gves you * L : 1 * dc 1 R 1 R W Q Q dw W Use o the Lagrangean uncton gves the sae results, o course. Brely, the Lagrangean s: WL RK Q L K where s the Lagrangean ultpler. Partally derentatng yelds, or an nteror soluton: 1 R K L K 1 W K L L Q L K (1a) (a) (3a) Takng the rato o (1a) to (a) yelds: L R L R K W K W (4a) Hence, the labor ntensty depends on actor prces and n ters o the orgnal producton uncton s ncreasng n the paraeter on L and decreasng n the paraeter on K. Usng (4a) to solve or L n ters o K, and then substtutng ths nto (3a) yelds the optu captal nput, whch wll be the sae as above. Then, ng ths soluton or captal, the soluton or labor s ound ro (4a), and the cost curve by pluggng back nto the objectve uncton. You do not need to solve or, but you do you get the ollowng ro (1a)

14 1 * R K R W L 1 Q 1 1 (5a) Lookng back at the cost uncton derved above and coparng to (5a), we see that (5a) represents the argnal cost uncton. Ths s no concdence; the Lagrangean ultpler n ths proble wll always yeld the argnal cost uncton. Fnally, or the specc unctons gven: 1 * * * C Q W R WL RK W R Q,, Q K L,, 1 so: TC Q, W, R W R Q * Q K T,, 1 so: TC Q, W, R W R Q 4 4 * where: Clearly, good M s labor ntensve and F s captal ntensve as we have ro (4a) above: L R K K ; 3 K W L 3 L where: W R (b) Gven output prces, show how an ncrease n the avalable supply o labor changes output. Fro the cost curves above we have: MC R W P and MC W R P (1b) We can e these two equatons to solve or actor prces n ters o output prce. Takng the rato o argnal costs and settng ths equal to the prce rato (relatve prces) yelds: MC W R W P MC W R R P where: ; P W (b) P R Pluggng ths back nto (1b) and solvng gves the level o actor prces: 14

15 P R P 3 1 W P (3b) P 3 1 Fro (3) and (4) n part (a) you have the optal aount o nputs n each sector: 1 34 * W * * 14 ; 3 K Q K Q K Q (4b) R * R * 3 * 1 L Q L Q, L Q (5b) W 3 P You can express these nput deands n ters o output prce by substtutng or n ters o. P Dong so and wrtng the resource constrants yelds: L L L 3 Q 3 Q L (6b) K K K 3 Q 3 Q K (7b) Gven prces, equatons (6b) and (7b) are jt lke proble #1 (.e., the labor and captal e per unt output are xed) and can be solved or output levels. Dong so yelds: ; 3 83 Q L K Q K L Th, gven prces, an ncrease n L wll ncrease the output o good M, the labor ntensve good, and decrease the output o good F. Also, note that output prces do not change, nput prces do not change snce, ro equaton (3b) above, actor prces can be deterned n ters o only output prces. Th, gven prces, an ncrease n L caes the supply o good M to ncrease and that o good F to decrease. But total ncoe ncreases as L ncreases, so deand or both goods ncreases. Hence, to restore equlbru, the prce o good F t ncrease (relatve prce o M decreases). Th, the autarky (relatve) prce o good F (the captal ntensve good) s an ncreasng uncton o the country s relatve labor abundance. Consequently, gven the sae deands and technology, the labor abundant country wll export the labor ntensve good (M) and port the captal ntensve good (F). Further, snce the wage rate decreases, and the rental rate ncreases, as the prce o good F ncreases (.e., the relatve prce o good M decreases), ths eans that the autarky wage rate wll be lower, and the autarky rental rate on captal hgher, n the labor abundant country. Hence, derences n actor supples lead to derences n autarky output prces, whch lead to the derences n nput prces one would expect.. As dscsed above, gven output prces, nput prces are deterned and hence changes actor supples wll not change actor prces. 15

16 (c) To show how actor prces change wth output prces, look back at equaton (3b). P R P 3 1 P W. Th P R 3 P R P R P 1 3 1; P P P ; 3 R P P P 3 W P W P W P W , 3 P P P P W P P These results ply that an ncrease n P, the captal ntensve good, lowers the real return to labor and rases the real return to captal n ters o ether good (a 1% ncrease n P, ncreases the rental rate R by 1.5%, and hence RP ncreases as P ncreases). Slarly, an ncrease n the prce o the labor ntensve good (M) lowers the real return to captal and rases the real return to labor n ters o ether good. The results show that, as P ncreases, W ncreases proportonately ore than P (.e., ncreases wth P ). Ths s the Stolper-Sauelson result. W P (d) Use your answer to parts (b) and (c) to predct the pattern o trade between a labor-abundant country (lke Chna) and a captal-abundant country (lke the U.S.). How wll trade aect the dstrbuton o ncoe n each country? Wll everybody gan ro trade? Explan. Snce Chna s labor-abundant, the autarky relatve prce o M wll be lower n Chna than n the U.S., the real wage wll be lower n Chna and the real return on captal wll be hgher. I trade, s allowed, the US wll export F and Chna wll export M. The relatve prce o M rses n Chna (alls n the US), so the real wage rses n Chna and the return on captal alls. O course, n the US the real wage alls and the real return on captal rses. Not everybody gans ro trade, though the ganers could copensate the losers. (e) Assue the U.S. s captal-abundant. Whch group n the U.S. s lkely to avor port tars and whch group s lkely to oppose trade restrctons? Explan. I the H-O odel correctly explans trade, the workers n the U.S. wll avor port tars and captalsts wll oppose the. I ports are labor-ntensve, ports rase the doestc prce o the labor ntensve good, ncreasng the real wage and reducng the real return on captal. 16