3. Question 1Assume a Heckscher-Ohlin (HO) model of trade. Germany (GER) and Italy (ITA) producemotorcycles (M) and textiles (T) using two factors, capital (K) and labor (L), that are mobileacross sectors. The production of motorcycles is capital intensive and that of textiles is labor-intensive. Let Germany and Italy relative supplies be represented in the diagram below:GERRS→ QuQTa. Which country is relatively capital abundant? Explain your answer.b. Add to the question diagram the relative demand of motorcycles in Germany andItaly. Label them RD©ER, RDTA, respectively.c. Which country has a comparative advantage in textiles? Which one inmotorcycles? Explain your answer.Now suppose countries are free to trade.d. Describe the patterns of trade. Are these consistent with the HO theorem? Explainbriefly.

From the above graph we can deduce : To produce Q1 amount of (Qm/Qt) : In Germany Opportunity Cost…

Answered: Assume a Heckscher-Ohlin (HO) model of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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