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5. a. Western Europe is capital abundant, Eastern Europe is labor abundant; manufacturing is capital intensive...

5. a. Western Europe is capital abundant, Eastern Europe is labor abundant; manufacturing is capital intensive (X) and agriculture (Y) is labor intensive.  Assume also that tastes in Western and Eastern Europe is unbaised and that labor and capital is mobile between manufacturing and agriculture within each region.  Illustrate everything on the trade diagram for both regions with pre trade, post trade price ratios! Write down the pre trade and post trade production and consumption points and the pattern of trade as well, including the trade triangles!

What would be the effect of opening trade on the return to capital and wages in Western Europe in the medium run (Stolper Samuelson)? What is the effect on the purchasing power of the labor and capital groups?

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Rahul Sunny answered 1 year ago
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