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The country of Dobermania has 20 units of labor and 3 units of land, while Malta has 80 units of labor and 7 units of land.

a. Is Dobermania labor abundant? Is Dobermania land-abundant?

b. If wheat is land-intensive and cloth is labour-intensive, what is the Heckscher-Ohlin prediction for the pattern of trade (which country exports which product) between Dobermania and Malta?

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Darryn D'Souza
Darryn D'SouzaLv10
28 Sep 2019

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Related questions

Consider the Heckscher-Ohlin model. The relationships among prices and marginal costs of producing cheese and bicycles at home are represented by the equations. Show work. For rounding purpose, keep two digits after the decimal point.

Pc = 15w + 8r, and Pb = w + r,

where Pc ≡ the price of cheese, Pb ≡ the price of bicycles, r ≡ the rental rate of capital, and w ≡ the wage rate.

a. Which good is the relatively capital intensive good? Why?

b. Under autarky, the price of cheese is $239 and the price of a bicycle is $22. What are the equilibrium wage and rental rates?

c. With trade, the price of bicycle in the home country rises 20 percent while the price of cheese remains the same. According to the Heckscher-Ohlin theorem, is the home country relatively labor abundant or relatively capital abundant? Why

d. What are the equilibrium wage and rental rates after trade at home?

e. Using your answers above, explain the Stolper – Samuelson theorem by describing what happens to the real earnings of labor and the real earnings of capital under trade.

Do all or none

2) The US and Mexico each produce two goods: pizza and beer (I was feeling original). The production of these goods is accomplished via the use of physical capital goods and labor. The factor availability is given below: US Mexico Capital 500 200 Labor 500 300 a) Which country is capital abundant? Which country is labor abundant? The following table gives the per unit input coefficients for pizza and beer production. Pizza Beer Capital 1 2 Labor 1 1 b) Which good is capital intensive in its production? Which is labor intensive? c) What good does the Heckscher-Ohlin model of trade predict will be exported by the US? Which good by Mexico?

3) How would a vacation to Disneyland by Russian tourists be classified in by the BOP accounts? What if the same vacation were taken by U.S. tourists?

4) Explain how the Stolper-Samuelson theorem indicates that free trade will worsen income inequality in the US but narrow it for Mexico.

5) Explain how international factor flows (capital or labor) can substitute for international trade.

6) Explain the difference between a potential Pareto improvement and a Pareto improvement. How is this distinction relevant to international economics

Q1. A fact that confirms that the United States of America have progressively become a more capital-intensive economy over the last 50 years...

A) ...is that the average level of K/L across industries in the USA has been increasing from 1960 to 2000

B) ...is that the capital stock has been decreasing from 1960 to 2000

C) ...is that the labor force has decreased from 1960 to 2000

D) ...is that the United States are relatively capital abundant compared to Mexico

Q2. Consider 2 Countries, A and B.
A is relatively capital abundant compared to B, while B is relatively labor abundant.
S is a capital intensive good, while T is labor intensive.
In an economy as the one described in Lecture 4, in which A and B have the same community indifference curves and technology...

A)Not enough information

B)PS/PT in autarky in Country A < PS/PT in autarky in Country B

C)PS/PT in autarky in Country A > PS/PT in autarky in Country B

D)PS/PT in autarky in Country A = PS/PT in autarky in Country B

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