Assume a Heckscher-Ohlin (HO) model of trade. Germany (GER) and Italy (ITA) produce motorcycles (M) and textiles (T) using two factors, capital (K) and labor (L), that are mobile across 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: RS GER Qu QT a. Which country is relatively capital abundant? Explain your answer. b. Add to the question diagram the relative demand of motorcycles in Germany and Italy. Label them RDCER, RD™^, respectively. c. Which country has a comparative advantage in textiles? Which one in motorcycles? Explain your answer. Now suppose countries are free to trade. d. Describe the patterns of trade. Are these consistent with the HO theorem? Explair briefly.
Assume a Heckscher-Ohlin (HO) model of trade. Germany (GER) and Italy (ITA) produce motorcycles (M) and textiles (T) using two factors, capital (K) and labor (L), that are mobile across 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: RS GER Qu QT a. Which country is relatively capital abundant? Explain your answer. b. Add to the question diagram the relative demand of motorcycles in Germany and Italy. Label them RDCER, RD™^, respectively. c. Which country has a comparative advantage in textiles? Which one in motorcycles? Explain your answer. Now suppose countries are free to trade. d. Describe the patterns of trade. Are these consistent with the HO theorem? Explair briefly.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
3.
Transcribed Image Text:Question 1
Assume a Heckscher-Ohlin (HO) model of trade. Germany (GER) and Italy (ITA) produce
motorcycles (M) and textiles (T) using two factors, capital (K) and labor (L), that are mobile
across 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:
GER
RS
→ Qu
QT
a. Which country is relatively capital abundant? Explain your answer.
b. Add to the question diagram the relative demand of motorcycles in Germany and
Italy. Label them RD©ER, RDTA, respectively.
c. Which country has a comparative advantage in textiles? Which one in
motorcycles? Explain your answer.
Now suppose countries are free to trade.
d. Describe the patterns of trade. Are these consistent with the HO theorem? Explain
briefly.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education