Suppose that the United States and Canada have the factor endowments as shown below. Suppose further that the production requirements for a unit of solar energy is four units of capital and one unit of land and the requirement for a unit of food is one unit of capital and three units of land.
................USA ..Canada
Capital ....200 .....150
Land .......400 ......75
a. Which good is relatively capital intensive? Labor intensive? Explain your answer.
b. According to the H-O model, which country will export food? Explain your answer.
c. What does the term "factor price equalization" mean?
d. Who is more likely to support free trade: the Canadian or American land owners? Explain your answer.
e. Graph the H-O diagram for the relative price of food. In your graph include the autarky equilibrium for each country as well as the free trade equilibrium.
f. Graph the PPF, isovalues and indifference curves for each country. Show the change in welfare after trade has changed the relative price for each country. Make sure to mark exports and imports on each graph.
Suppose that the United States and Canada have the factor endowments as shown below. Suppose further that the production requirements for a unit of solar energy is four units of capital and one unit of land and the requirement for a unit of food is one unit of capital and three units of land.
................USA ..Canada
Capital ....200 .....150
Land .......400 ......75
a. Which good is relatively capital intensive? Labor intensive? Explain your answer.
b. According to the H-O model, which country will export food? Explain your answer.
c. What does the term "factor price equalization" mean?
d. Who is more likely to support free trade: the Canadian or American land owners? Explain your answer.
e. Graph the H-O diagram for the relative price of food. In your graph include the autarky equilibrium for each country as well as the free trade equilibrium.
f. Graph the PPF, isovalues and indifference curves for each country. Show the change in welfare after trade has changed the relative price for each country. Make sure to mark exports and imports on each graph.
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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.
