1. The text notes that, if demand reversal were the cause of the Leontief paradox, then...

1. The text notes that, if demand reversal were the cause of the Leontief paradox, then labor would be relatively cheap in the United States. Explain the reasoning behind this statement.

Expert Solution

Leontief used input output table of economy to evaluate paradox. Be collected data and found that US import were 30% more capital intensive than US exports. In his explanation he said that US workers are more effective in comparison to other workera. The reason was that it have proper technology and higher capital labor ratio.There might be some difference in labor efficiency or productivity in comparison to the rest of the world. He attempted few test so that US may adopt its competitive policy to meet economic realities. Labor are capital intensive in US. He too tried to explain his paradox on factors. He says US trade policy is highly protective. The exports of the United States are very capital intensive but may not be intensive in case lf unskilled labor.

The theory is said to be wrong because it continued to do the research on the same data. Analysis on labor and capital was lacking as well as proper diatinguish between skilled and unskilled labor was lacking.

Rahul Sunny answered 2 years ago

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