Consider two countries, Home and Foreign, trading two goods, Rice and Car. The Home country is...

Consider two countries, Home and Foreign, trading two goods, Rice and Car. The Home country is endowed with abundant capital relative to labor and hence has a comparative advantage to specialize in Cars; whereas the Foreign country is endowed with abundant labor and specializes in Rice. Once they start trading, the price of cars decreases, and the price of rice increases in the Foreign country. How would the increase in the price of rice affect the income of each of the following factors under each trade model in the Foreign country?

a. Ricardo Trade model

i. Real wage earned by labor

b. The Specific-factors trade model

i. Rental rate of capital

ii. Rental rate of land

iii. Real wage earned by labor

c. The Heckscher- Ohlin (H.O.) Trade model

i. Rental rate of capital

ii. Real wage earned by labor

d. Is there a gain from trade for the foreign country under the H.O. Model? Explain

Expert Solution

Rahul Sunny answered 2 years ago

Consider two countries, Home and Foreign, trading two goods, Rice and Car. The Home country is...

Consider two countries, Home and Foreign, trading two goods, Rice and Car. The Home country is endowed with abundant capital relative to labor and hence has comparative advantage to specialize in Cars; whereas the Foreign country is endowed with abundant labor and specializes in Rice. Once they start trading, the price of car decreases, and the price of rice increases in the Foreign country. How would the decrease in the price of car affect the income of each of the...

Imagine two countries are trading pomegranates. The Home country is “large” and imports pomegranates. The Foreign...

Imagine two countries are trading pomegranates. The Home country is “large” and imports pomegranates. The Foreign country exports pomegranates (the size of Foreign is not important for this question). What would happen to the equilibrium world price of pomegranates if demand for pomegranates in the Foreign country's market increases? a.The equilibrium world price will increase b.The equilibrium world price will decrease c.The equilibrium world price will not change part2 Imagine two countries are trading flower pots. The Home country is...

Consider a world with two countries, Home and Foreign, both able to produce two goods: cloth...

Consider a world with two countries, Home and Foreign, both able to produce two goods: cloth and tablet computers. The production of both goods uses capital and labor in fixed proportions, with the tablets industry using more capital per worker than the cloth industry. The units of each input needed to produce one unit output are given by: capital Labor Cloth 1 2 Tablets 2 1 Both countries have 150 units of capital available for production, but the Home country...

Consider the Heckscher-Ohlin model with two countries, Home and Foreign, and two goods, carpets and tableware....

Consider the Heckscher-Ohlin model with two countries, Home and Foreign, and two goods, carpets and tableware. There are two factors, capital and labour, each of which can be used in the production of either good. Home is capital abundant whereas Foreign is labour abundant. Let PC and PT represent the prices of carpets and tableware, respectively. Assume that under autarky we have (PC/PT) Home < (PC/PT) Foreign. Moreover, assume that there is some degree of substitutability in production between capital...

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...

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...

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 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. There is one high-tech firm in each country, and each...

Consider two countries: Home and Foreign. There is one high-tech firm in each country, and each firm produces high-speed trains for both domestic consumption and exporting. The high-tech firms in both countries have been operating businesses for decades without subsidy. However, they plan to produce a new model of high-speed train, and this new model requires a large amount of fixed cost, which is equivalent to 20 times of marginal cost. Each firm has asked its government to provide subsidy,...

Question

Consider two countries, Home and Foreign, trading two goods, Rice and Car. The Home country is...

Solutions

Expert Solution

Related Solutions

Consider two countries, Home and Foreign, trading two goods, Rice and Car. The Home country is...

Imagine two countries are trading pomegranates. The Home country is “large” and imports pomegranates. The Foreign...

Consider a world with two countries, Home and Foreign, both able to produce two goods: cloth...

Consider the Heckscher-Ohlin model with two countries, Home and Foreign, and two goods, carpets and tableware....

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...

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

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

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

Consider two countries: Home and Foreign. There is one high-tech firm in each country, and each...