Suppose there exist 2 countries, Home and Foreign; 2 goods, X and Y; and 2 factors...

Suppose there exist 2 countries, Home and Foreign; 2 goods, X and Y; and 2 factors of production, labour (L) and capital (K). Each country can produce both goods. X is labour-intensive and Y is capital-intensive. Home is labour-abundant and Foreign is capital-abundant. Assume that the standard assumptions of the Heckscher-Ohlin model hold. When answering the following question, please support each of your arguments with detailed analysis and draw the relevant diagrams to support your answer.

Consider a move from autarky to free trade between the two countries in both goods. Identify which group of people (labourers or owners of capital) gain and which lose in Home from the move from autarky to free trade. Discuss clearly how the assumptions of the model lead to this result.

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Rahul Sunny answered 6 months ago

[One-factor model] Assume that there are 2 countries: Home and Foreign. And there are 2 goods:...

[One-factor model] Assume that there are 2 countries: Home and Foreign. And there are 2 goods: apple and banana. Home has 2,400 units of labor available. The unit labor requirement in apple production is 6, while in banana production it is 4. Foreign has 800 units of labor available. The unit labor requirement in apple production is 5, while in banana production it is 1. 1) What is the opportunity cost of apples in terms of bananas in Home and...

There are 2 countries, Home and Foreign, and 2 goods, Wine and Cheese. In each country...

There are 2 countries, Home and Foreign, and 2 goods, Wine and Cheese. In each country the are 150 workers. But not all workers are the same: some workers are cheese-makers and some workers are wine-makers. Each cheese-maker can produce one pound of cheese and zero bottles of wine, and each wine-maker can produce one bottle of wine and zero pounds of cheese. In the Home country there are 100 cheese-makers and 50 wine-makers, and in the Foreign country there...

Consider a specific-factors world consisting of two countries, Home (H) and Foreign (F), and two goods,...

Consider a specific-factors world consisting of two countries, Home (H) and Foreign (F), and two goods, coffee (C) and doughnuts (D). Home has 120 units of labour that are mobile between industries and immobile internationally, some capital owners that are involved in doughnut production and some landowners that are involved in coffee production. Capital and land is immobile between industries and internationally. The marginal product of labour in each industry is given by MPLC = 120 − LC and MPLD...

Consider two countries (Home and Foreign) that produce goods 1 (with labor and capital) and 2...

Consider two countries (Home and Foreign) that produce goods 1 (with labor and capital) and 2 (with labor and land). Initially, both countries have the same supply of labor (100 units each), capital, and land. The capital stock in Home then shrinks. This change shifts in both the production curve for good 1 as a function of labor employed and the associated marginal product of labor curve. Nothing happens to the production and marginal product curves for good 2. a....

Consider two countries (Home and Foreign) that produce goods 1 (with labor and capital) and 2...

Consider two countries (Home and Foreign) that produce goods 1 (with labor and capital) and 2 (with labor and land) according to the production functions q1 = L10.5K0.5 and q2 = L20.5T0.5 where Li is the labor input in sector i = 1, 2, K is capital, and T is land. a. Suppose there is capital inflow from the foreign country so that K increases. How would this affect the marginal product of labor in sector1. (If you do not...

Suppose Home and Foreign countries (H and F) trade two goods, G1 and G2, and each...

Suppose Home and Foreign countries (H and F) trade two goods, G1 and G2, and each country is populated with 2 workers (workers can split work time between two industries). At home, one worker can produce either 1 units of G1 or 2 units of G2 in one day. For foreign worker it takes 0.5 days to produce one unit of G1 and 0.2 days to produce one unit of G2. (a) 5% Calculate the opportunity costs of producing G1...

Suppose two countries, home and foreign, produce two goods, timber and televisions. Assume that land is...

Suppose two countries, home and foreign, produce two goods, timber and televisions. Assume that land is specific to timber, capital is specific to televisions, and labor is free to move between the two industries. When the Home country moves into doing free trade with the Foreign country, the Home country exports timber. True or False. Explain 1. The Home country produces only timber under free trade. 2. Going from closed economy to free trade, the opportunity cost of TV increases...

There are two countries Home and Foreign. They can produce two goods, apples and bananas. Home...

There are two countries Home and Foreign. They can produce two goods, apples and bananas. Home has 1,200 units of labor available and Foreign has a labor force of 800. The table below contains the unit labor requirement in Foreign and Home for each of two goods. Banana Apples Home aB = 1 hour per pound aA = 2 hours per pound Foreign aB = 4 hours per pound aA = 5 hours per pound 1. Suppose that, after opening...

Consider two countries, Home and Foreign, with variables in Foreign denoted by asterisks ("*"). Let Y...

Consider two countries, Home and Foreign, with variables in Foreign denoted by asterisks ("*"). Let Y = 2,000, M = 400, P = 1.25; and Y* = 1,500, M* = 300, P* = 2.00. Suppose the demand for liquidity takes the same form in both countries, that is, L(R, Y) = L* (R, Y) = 2Y/100R (notice that the functions have the same form, but in each country the values of Y and R are different). (Advice: once again, don't...

Consider two countries, Home and Foreign, with variables in Foreign denoted by asterisks ("*"). Let Y...

Consider two countries, Home and Foreign, with variables in Foreign denoted by asterisks ("*"). Let Y = 2,000, M = 400, P = 1.25; and Y* = 1,500, M* = 300, P* = 2.00. Suppose the demand for liquidity takes the same form in both countries, that is, L(R, Y) = L* (R, Y) = 2Y/100R (notice that the functions have the same form, but in each country the values of Y and R are different). (Advice: once again, don't...

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Suppose there exist 2 countries, Home and Foreign; 2 goods, X and Y; and 2 factors...

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