Question

Discussion Questions

1. 1 ”No country is abundant in everything.” Discuss.

2. 2 If Japan is relatively capital rich and the US is relatively land rich, and if food is relatively land intensive, what happens to price when these formerly autarkic countries trade?

   • global price of food
   • relative price of food in the US, Japan

3. 3 Why is it that North-South trade in manufactures seems to be consistent with the results or expectations generated by the factor-proportions theory of international trade, (whereas North-North trade might not)?

4. 4 Europe is capital abundant and Africa is labor abundant. Manufactures is capital intensive and food is labor intensive. If the two regions trade, discuss changes in prices of goods, prices of factors and distribution implications.

Answer 1

Answer 1

Hecksher Ohlin model is a general equilibrium theory in internantional trade. It always focuses on two factors of production - capital and labour. It focuses on only two countries. According to this theory no country is abundant in every thing. In certain countries work force is avaible, the shortge of raw materials and natural resources will not be enough. On the other hand in certain other geographicl areas there will be abundance of natural resources and raw materials there will not be sufficieint work force. Developing countries and under developed countries are suffering shortge of wealth.

This is the time we have to think about international trade . According to this theory those countries which are capital rich can export those goods which required more capital for production. On the oher hand the other country which is labour rich can produce such items for which more man power is required and export it to those countries they are capital rich and not labour rich.

Answer 2

Political events, global demand, war, diseases, natural disasters, geographical and environmental conditions, soil, etc. determines the increase or decrese in the prices of food. Demand for food based on income growth, population growth, etc, are also factors affecting the prices of food.  

Japan is a country popularly known for its labour force. They are very hard working for less amount of wages. On the other hand US people are dominating in nature and not that much labour oriented. Food is land and labour oriented. Hence if a situation comes in the economy where US is landrich the global price of food will relatively increase. Becuase US is a developed country and it is capital rich. People will get huge amount of money for small amount of work and people are familiar with that. If it becomes land rich immediately it is very difficult to find out skilled work force. If skilled force are available also they will demand for more wages. It will affect the cost of food and it will result a risein food priceglobally.

Relative price of food in US will be comparatively less under this situation, and in the case of Japen it will be high due to additional packaging and transportation charges.

Answer 3

From 1980s we can see the nature of international trade is focused between north - south. That is between developed countries which are capital abundant and developing countries which are labour abundant. The trade with China after trade liberalization policy is an example. China a labour rich country, where labour is comparatively very cheap and the quantity of labour is very high, could export a large amount of its products to US.

Answer 4

If Europe and Africa engaged in trade each other Eupope can utilize the man power of africa to convert their inventories into finished goods. This will help Africa to become more economically advanced because of more employment opportunities to their labour force. Europe a capital rich country can also invest more capital on food production field. Hence through international trade Africa will get double benefit. Because of more employment opportunities their gross domestic production will increase. Because of the local work force the cost of production will be less and the products will be available in the market at comparatively lesser price.

Europe on the hand also can attain more by investing more money in a developing country like Africa. where there is manpower is abundant and cheaper. More amount of commodities can be produced with less amount of labour.