Question

Suppose that the UK is a small open country producing only cars and crude petroleum. For simplicity assume that cars and crude petroleum are labor-intensive and capital-intensive respectively. Now, suppose there is an inflow of workers from Eurozone to the UK. Using the theories we discussed in class, answer the following questions with proper arguments, equations, or graphs. (10 points)

1. How would the wage in the UK change as a result of incoming workers? Why? (2 points)

2. How would the capital rental rate in the UK change as a result of incoming workers? Why? (2 points)

3. How would the production bundle change? Why? (2 points)

4. Suppose by exiting EU open borders policy would stop. Now, given the fact that British people voted for Brexit, determine whether the UK is a labor abundant country or a capital abundant country. Explain. (2 points)

5. Would immigration imply a pro or anti trade production effect for the UK? Why? (2 points)

Answer 1

Labour intensive:

Labour intensive refers to the substantial amount of labour requires for the production of goods and services.

Capital intensive:

1. Capital intensive refers to those process of business in which industries requires huge amount of investment for production of goods and services.

1. How would the wages in the UK change as a result of incoming workers?

1) The minimum wages of UK is based on wage per hour and this is applicable to all the jobs. If the market is competitive nature with good and perfect workers, then wages also move according to the same level.

2) Real value of wages depends upon two things such as money on pay packet, and price of things persons need to buy

2. How would the capital rental rate in the UK change as a result of incoming workers?

1) Capital rental income concern with rent that receives from the tenants with addition the service charges funds. Rental income includes letting of property such as: flats, office, apartments etc.

2) Pay income tax upfront

3. How would the production bundle change?

Production bundle refers to bundling of different types of products for sale.

1) The changing of bundle either due to new production components

2) Bundle can be change according to the environment

4. UK is a labour abundant country or capital abundant country?

Country said to be capital abundant if investment of capital is large, UK is a labour intensive country as compared to rest of the world.

5. Pro or anti trade production effect for uk:

Pro trade means decline the space as well as turn into large negative ethnic communities which are far away from specific pr