Question
In: Economics
Consider a Heckscher-Ohlin world with two countries (Japan and Ireland), two goods (Cameras and Linen), and...
Consider a Heckscher-Ohlin world with two countries (Japan and
Ireland), two goods (Cameras and Linen), and two factors of
production (labor(L) and capital(K)). Both factors of production
are used in the production of each of these goods. Suppose the K/L
ratio used to make linen is less than the K/L ratio used to make
cameras. Also, the ratio of total capital to labor in the economy
is higher in Japan than Ireland. Assume that Japan and Ireland have
the same preferences and technology.
a.Which good is K-intensive? Which good is L-intensive?
b.Which country is K-abundant? Which country is
L-abundant?
c.Draw the RD and RS diagram. Show each country’s RS curve.
Which country should have a lower relative wage?
d.Without trade which country should have a higher relative
price of linen?
e.With trade which country should export cameras and which
country should export linen?
f.What should happen to the relative price of linen in each
country with trade? What will this do to the relative wage in each
country? Show in a diagram the relationship between the relative
price of linen and the relative wage.
g.Suppose because of an EU development project, Ireland sees
an increase in the amount of capital it has. What would this do to
the relative quantity of linen produced in Ireland, the relative
price of linen, and the allocation of capital and labor in
Ireland.
Solutions
Rahul Sunny answered 1 year agoRelated Solutions
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