(a) Which industry would you expect to be relatively labour intensive, and which capital-intensive? Why (b) Draw production possibilities frontiers for each country keeping the production of rugs in the horizontal axis and the production of robots in the vertical axis. Assuming that consumer preferences are the same in both countries, add indifference curves and relative price lines under autarky. What are the differences in the relative price of rugs between the countries under autarky? (c) Depict the optimal production and consumption bundles when Canada and India open up to trade with each other. Explain what form will the trade pattern take. (d) Does free-trade make all individuals in Canada and India better-off? Explain why or why not.

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Question 5
Consider the production of handmade rugs and assembly robots in India and Canada. Assume that Canada
is relatively abundant in capital and that India is relative abundant in labour. Furthermore assume that the
production technology for rugs and robots is the same in both countries.
(a) Which industry would you expect to be relatively labour intensive, and which capital-intensive? Why
(b) Draw production possibilities frontiers for each country keeping the production of rugs in the horizontal
axis and the production of robots in the vertical axis. Assuming that consumer preferences are the same
in both countries, add indifference curves and relative price lines under autarky. What are the differences
in the relative price of rugs between the countries under autarky?
(c) Depict the optimal production and consumption bundles when Canada and India open up to trade with
each other. Explain what form will the trade pattern take.
(d) Does free-trade make all individuals in Canada and India better-off? Explain why or why not.
Transcribed Image Text:Question 5 Consider the production of handmade rugs and assembly robots in India and Canada. Assume that Canada is relatively abundant in capital and that India is relative abundant in labour. Furthermore assume that the production technology for rugs and robots is the same in both countries. (a) Which industry would you expect to be relatively labour intensive, and which capital-intensive? Why (b) Draw production possibilities frontiers for each country keeping the production of rugs in the horizontal axis and the production of robots in the vertical axis. Assuming that consumer preferences are the same in both countries, add indifference curves and relative price lines under autarky. What are the differences in the relative price of rugs between the countries under autarky? (c) Depict the optimal production and consumption bundles when Canada and India open up to trade with each other. Explain what form will the trade pattern take. (d) Does free-trade make all individuals in Canada and India better-off? Explain why or why not.
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