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The country of the USA has 20 units of labor and 3 units of land, while China has 80 units of labor and 7 units of land.

a. Is the USA labor abundant? Is the USA land-abundant?

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

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Joshua Stredder
Joshua StredderLv10
28 Sep 2019

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Related questions

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?

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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.

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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.

The home produces two goods, computers and wheat. Capital is specific to computers, the land is specific to wheat, and labor is mobile between the two industries. Home has 100 workers and 100 units of capital but only 10 units of land. Foreign also produces computers and wheat using capital, which is specific to computers; land, which is specific to wheat; and labor, which is mobile between the two sectors. Foreign also has 100 workers but instead has 100 units of land and only 10 units of capital. It has the same production functions as at Home.

Clearly indicate the correct answer in italics for the following question:

The no-trade price of wheat will be higher/lower in Home than in Foreign because Home has more, fewer units of land than Foreign. The no-trade price of computers will be higher/lower in Home than in Foreign because Home has more, fewer units of capital than Foreign.

If the trade is opened, with trade the relative price of wheat will increase/decrease in Home and increase/decrease in Foreign. If the trade is opened, the rental on capital will increase/decrease at Home and the rental on land will increase/decrease in Foreign.

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