1. The United States and Canada have endowments of capital and labor given by the table below.
UNITED STATES
CANADA
Capital
50 machines
14 machines
Labor
190 workers
62 workers
a. According to the table which country is relatively more labor abundant? Explain. Which country is relatively capital abundant?
b. Suppose these economies can produce steel and bread. Both economies have access to the same technology. In order to produce steel a unit of steel, a firm must use two machines and six workers. In order to produce bread, a firm needs to one machine and five workers. Which good is relatively capital intensive? Which good is relatively labor intensive?
c. Assume that all factors are fully employed how much steel is produced in the US how and how much bread is produced in the US? How much steel and bread is produced in Canada? What accounts for the differences in relative amount of steel produced?
d. Which country is likely to export steel? Which country is likely to export bread?
1. The United States and Canada have endowments of capital and labor given by the table below.
| UNITED STATES | CANADA | |
| Capital | 50 machines | 14 machines |
| Labor | 190 workers | 62 workers |
a. According to the table which country is relatively more labor abundant? Explain. Which country is relatively capital abundant?
b. Suppose these economies can produce steel and bread. Both economies have access to the same technology. In order to produce steel a unit of steel, a firm must use two machines and six workers. In order to produce bread, a firm needs to one machine and five workers. Which good is relatively capital intensive? Which good is relatively labor intensive?
c. Assume that all factors are fully employed how much steel is produced in the US how and how much bread is produced in the US? How much steel and bread is produced in Canada? What accounts for the differences in relative amount of steel produced?
d. Which country is likely to export steel? Which country is likely to export bread?
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1. The capital stock in India is $22 trillion, and the labor force is 511 million people. The capital stock in Sri Lanka is $584 billion, and the labor force is 8 million people. Which country is relatively capital abundant?
A.India.
B.Sri Lanka
2. The capital to labor ratio in steel production in India and Sri Lanka is higher than the capital to labor ratio in textile production in both countries. We can say that the steel industry is
A.relatively capital abundant in both countries.
B.relatively capital intensive in both countries.
C.has a comparative advantage over the textile industry.
D.has an absolute advantage over the textile industry.
3. Using the data from the previous two problems, and assuming that the only two countries in the world are Sri Lanka and India, the Heckscher-Ohlin Theorem predicts that ________ , and the Stolper Samuelson Theorem predicts that _____________.
| A. |
India will export steel; labor in India will benefit from trade. |
|
| B. |
Sri Lanka will export steel; labor in Sri Lanka will benefit from trade. |
|
| C. |
India will export steel; capital owners in India will benefit from trade. |
|
| D. |
Sri Lanka will export steel; capital owners in Sri Lanka will benefit from trade. |
Draw the graph carefully. Please use one graph per country and show both the autarky and the free trade equilibrium on each graph.
Consider the following data on the factor endowments of two countries A and B:
|
Countries |
||
|
Factor Endowments |
A |
B |
|
Labor force: L |
100 workers |
50 workers |
|
Capital Stock: K |
60 machines |
10 machines |
a. Which country is relatively capital abundant? Which country is relatively labor abundant? Explain (calculate the ratios).
b. Supposing that cars are capital intensive relative to shoes, which country will have a comparative advantage in the production of cars? Of shoes? Explain.
c. Graphically demonstrate the pre-trade and post-trade equilibrium between these two countries (production and consumption points). Draw a Demand Diagonal. Find and label the trade triangles for each country.
d. Which factor gains and which factor loses when trade arises between these two countries? Explain precisely.
