Home is endowed with 10,000 labor hours and 1000 units of capital stock, which Foreign is endowed with 2000 labor hours and 100 units of capital stock. Both countries produce computer and cloth. Computer is more capital intensive than shoes (that is, cloth is more labor intensive than computer).
1. Which is country is relatively abundant in capital? Which country is relatively abundant in labor? Why?
2. In what sense is computer said to be more capital intensive than cloth?
3. In what sense is cloth said to be more labor intensive than computer?
4. Based on the Hecksher-Ohlin theorem, what is the predicted pattern of trade between Home and Foreign? Why?
5. If Home opens up to international trade, how will the relative price of computer be compared to its autarky level? Why?
6. If Foreign opens up to international trade, how will the relative price of computer be compared to its autarky level?
7. If Home moves from autarky to free trade, how do you predict the change in the capital intensity in each industry of the home economy?
8. If Foreign moves from autarky to free trade, how do you predict the change in the capital intensity in each industry of the foreign economy?
9. If Homes move from autarky to free free trade, who will gain and who will lose in the home economy based on the Stolper-Samuelson theorem? Why?
10. If Foreign move from autarky to free trade, who will gain and who will lose in the foreign economy based on the Stolper-Samuelson theorem? Why?
11. If Homeâs capital stock rises, then at an unchanged relative price of goods, which industry will grow and which industry will decline in the home economy based on The Rybczynski theorem? Use the PPF diagram to indicate this theorem?
12. Free trade may result in factor prices equalization (FPE) between Home and Foreign. Explain this possibility with the aid of diagrams. Also, explain why the FPE hypothesis failed empirically.
Home is endowed with 10,000 labor hours and 1000 units of capital stock, which Foreign is endowed with 2000 labor hours and 100 units of capital stock. Both countries produce computer and cloth. Computer is more capital intensive than shoes (that is, cloth is more labor intensive than computer).
1. Which is country is relatively abundant in capital? Which country is relatively abundant in labor? Why?
2. In what sense is computer said to be more capital intensive than cloth?
3. In what sense is cloth said to be more labor intensive than computer?
4. Based on the Hecksher-Ohlin theorem, what is the predicted pattern of trade between Home and Foreign? Why?
5. If Home opens up to international trade, how will the relative price of computer be compared to its autarky level? Why?
6. If Foreign opens up to international trade, how will the relative price of computer be compared to its autarky level?
7. If Home moves from autarky to free trade, how do you predict the change in the capital intensity in each industry of the home economy?
8. If Foreign moves from autarky to free trade, how do you predict the change in the capital intensity in each industry of the foreign economy?
9. If Homes move from autarky to free free trade, who will gain and who will lose in the home economy based on the Stolper-Samuelson theorem? Why?
10. If Foreign move from autarky to free trade, who will gain and who will lose in the foreign economy based on the Stolper-Samuelson theorem? Why?
11. If Homeâs capital stock rises, then at an unchanged relative price of goods, which industry will grow and which industry will decline in the home economy based on The Rybczynski theorem? Use the PPF diagram to indicate this theorem?
12. Free trade may result in factor prices equalization (FPE) between Home and Foreign. Explain this possibility with the aid of diagrams. Also, explain why the FPE hypothesis failed empirically.
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