Question

Let us assume a 2x2x2 model (country H & F, good A & B, factors L & K).

The two countries are identical except L < L* and K > K*

More over good A is labor intensive and good B is capital intensive

(a) Now suppose the relative demand for good A (Rd) is NOT identical in H and F. Rather at each relative world price of good A, the H country’s relative demand for good A (Rd) is way smaller than that of country F. In this case show the autarky prices using a graph with world relative supply and relative demands and show the direction of trade.

Answer 1

A) Here the relative demand is explaned as follows which is L < L* and K > K* and it is a part of 2x2x2 model

The autarky price of a good is the market clearing price in a closed economy. Autarky price = pA; = (p¹/p²)A; at autarky. At this price X = M = 0. because domestic and foreign markets are not connected.Contemporary. Today, national economic autarkies are relatively rare. A commonly-cited example is North Korea, based on the government ideology of Juche (self-reliance), which is concerned with maintaining its domestic localized economy in the face of its isolation.

The introduction of trade into a society always works for the better. Autarky economies are much less efficient at producing goods than countries that trade, citizens are less satisfied, and goods are much more expensive to consume and produce than in countries that use free trade.

Autarky is the characteristic of self-sufficiency; the term usually applies to political states, societies or to their economic systems. Autarky exists whenever an entity survives or continues its activities without external assistance or international trade.If a self-sufficient economy also refuses to conduct any trade with the outside world then economists may term it a closed economy.Economic theorists also use the term "closed economy" technically as an abstraction to allow consideration of a single economy without taking foreign trade into account – i.e. as the antonym of "open economy".) Autarky in the political sense is not necessarily an exclusively economic phenomenon; for example, a military autarky would be a state that could defend itself without help from another country, or could manufacture all of its weapons without any imports from the outside world.

Autarky as an ideal or method has been embraced by a wide range of political ideologies and movements, especially left-wing creeds like African socialism, mutualism, war communism  council communism, Swadeshi, syndicalism (especially anarcho-syndicalism) and leftist populism, generally in an effort to build alternative economic structures or to control resources against structures a particular movement views as hostile. Conservative, centrist and nationalist movements (such as in the American system, Juche, mercantilism, the Meiji Restoration, social corporatism, and traditionalist conservatism) have also adopted autarky in temporary, limited ways - usually in an attempt to preserve part of an existing social order or to develop a particular industry. Some fascist and far-right movements occasionally espoused autarky as a goal but in practice crushed,existing movements towards self-sufficiency and established extensive capital connections to serve as a basis for war and/or genocide[6] while allying with traditional business elites