A free-trade equilibrium exists in which United States exports Food and imports clothing from China. The goods are produced with two factors: capital and labour. The trade pattern is the one predicted by the H-O theory. a. Show standard trade model graphically and explain the effect on quantities produced, quantities consumed and welfares of free trade in the United States and China respectively. b. Show graphically an increase now occurs in the U.S. endowment of capital, its abundant factor. 1. What is the effect on the shape and position of the U.S. production-possibility curve? 2. What is the effect on the actual production quantities in the United States if the relative product price is unchanged? Explain
A free-trade equilibrium exists in which United States exports Food and imports clothing
from China. The goods are produced with two factors: capital and labour. The trade pattern is
the one predicted by the H-O theory.
a. Show standard trade model graphically and explain the effect on quantities produced,
quantities consumed and welfares of free trade in the United States and China respectively.
b. Show graphically an increase now occurs in the U.S. endowment of capital, its abundant
factor.
1. What is the effect on the shape and position of the U.S. production-possibility
curve?
2. What is the effect on the actual production quantities in the United States if the
relative product
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