1. Suppose that the United States and Canada have the factor endowments given in Table 1 below. Table 1 ..................United States......... Canada Capital..... 80 machines ...........40 machines Labour..... 40 workers ..............80 workers a) According to the above table, which country is relatively more labor-abundant? Which country is relatively more capital-abundant? Explain your answer with working calculations and a relevant diagram. (factor abundance diagram for the countries)
1. Suppose that the United States and Canada have the factor endowments given in Table 1 below.
Table 1
..................United States......... Canada
Capital..... 80 machines ...........40 machines
Labour..... 40 workers ..............80 workers
a) According to the above table, which country is relatively more labor-abundant? Which country is relatively more capital-abundant? Explain your answer with working calculations and a relevant diagram. (factor abundance diagram for the countries)
b) Suppose further that the production requirements for a unit of steel is 4 machines and 2 workers, and the requirement for a unit of bread is 2 machines and 4 workers. Which good, bread or steel, is relatively capital-intensive, and which good is labor-intensive? Explain your answer with a relevant diagram. (factor intensity diagram for both commodities)
c) Which country would export steel? Why? Explain which trade theory that predicts such a pattern of trade.
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