Consider a standard Heckscher-Ohlin (HO) Model, wheretwo countries Home and Foreign produce two goods,sugar and milk, using labour (L) and capital (K). Home isrelatively labour abundant and Foreign is relativelycapital abundant. Assume that sugar is relatively capitalintensive and milk is relatively labour intensive. Answerthe following questions: (i) Discuss the pattern of tradebetween the two countries. (li) Under what conditionsfactor price equalization may be obtained Discuss withhelp of a diagram showing the segment of equalizatie

The objective of the question is to understand the pattern of trade between two countries based on…

Answered: Consider a standard Heckscher-Ohlin…

ENGR.ECONOMIC ANALYSIS

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Author:NEWNAN

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Chapter1: Making Economics Decisions

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In the Romer Model (1990), if the level of technological knowledge is 1000, productivity parameter in the R&D sector is 0.0001, and wage paid to human capital is 50, what is the price of a new design from the R&D activities? (Show calculation steps.) In the Romer Model (1990), suppose the productivity parameter in the R&D sector is 0.0001 and the stock of human capital in the economy is 5000, of which 4000 is allocated to the manufacturing of the final goods. In the final goods production sector, output elasticity with respect to labor is 0.3 and output elasticity with respect to human capital is 0.5. Find the equilibrium interest rate. (Show calculation steps.)
19) According to the Heckscher-Ohlin model, the source of comparative advantage is a country's A) factor endowments. B) technology. C) advertising. D) human capital. E) political system. Answer:
What does a Production Possibility Frontier for Product X versus Y represent? A) The total combined production of Product X + Product Y for a given set of factors of production B) The trade-off in the level of total production at various output mixes for Product X and Product Y C) The most efficient product production mix for a given set of factors of production D) All of the above
Consider the Heckscher-Ohlin-Samuelson model for the US producing 2 goods (digital cameras and baskets) using 2 factors (capital and labor). Let the production of digital cameras be relatively capital-intensive. If foreign owners of domestic capital decide to decrease their investment in the US, how would that affect the output in each industry?
Consider the Specific Factors model with two countries, Home and Foreign, with two goods, cars (c) and pharmaceutical drugs (d), and three factors, capital K, skilled labour S, and unskilled labour L. The production functions are given by 1 F.(Ke, Le) = K. Lễ and Fa(Ka, Sa) = K}S}. That is, skilled labour is specific to pharmaceutical drugs, and unskilled labour to cars. Suppose that the countries' factor endowments are KH = 2 = KF, and LF = 3/2, and SH LH :1 || 1 and SF = 1/2, so that the total labour force is 2 in both countries. The price of capital is denoted by r, the price of skilled and unskilled and normalise pa = labour by w, and wi. Denote the goods' prices by pc and Ра, : 1 for simplicity. The demand for cars and drugs in country j = H, F is given by x and r: %3D 2Yi and ra 3 pe 1Yi %3D 3 pa where Y' denotes aggregate income in country j. (a) Draw or compute the PPFS of Home and Foreign.
QUESTION 9 Question 3b-6 If the international terms of trade settle at a level that is between each country's opportunity costs: There is no basis for gainful trade for either country. Both countries gain from trade. Trade will lead to loses for each country. Only one country gains from trade.
Suppose we are considering a HO model setting, where countries have not yet opened up to trade. Two goods are produced exclusively by domestic labor supplies, tires and vehicle frames. Suppose a tire is labor-intensive in production whereas constructing vehicle frames is a capital intensive task that more frequently features automated machinery. Home and foreign maintain the following capital (K) and labor (L) endowments. Factor L K Home 1120 575 Foreign 1680 950 Suppose these countries transition into a free trade scenario. Using the previous details about both countries, perform the following tasks. (i) Sketch a world relative price, CPC line, through your bundle such that it passes through the PPF (it will have no tangency to PPF). (ii) Using this CPC line, with its fixed slope, shift the line until it is perfectly tangent with the indifference curve. Update your sketch with this newly labeled CPC. (iii) Correctly label the equilibria points at which Home consumes and produces. (iv)…
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The demand and supply of pizza is defined by the following equations: Qd = D(P, Y ) = 1 + Y − 2P Qs = D(P, PM) = 2 P/PM where, Qd is quantity demand, P is the price of each pizza sold, Y is the average income of consumers, Qs is the quantity supplied, and Pm is the price of inputs used in the production of pizza. (a) List the endogenous and exogenous variables of this model (b) Find the equilibrium price Pe and quantity Qe of pizza as a function of the exogenous variables. (c) Use a simple demand and supply diagram to show what happens to the equilibrium price and quantity when there is an increase in one of the exogenous variables.
As a result of the North American Free Trade Agreement (NAFTA), trade restrictions between the United States and Mexico were eased and cross-border trade increased. According to Stolper-Samuelson theorem, which of the following groups of people most likely gain from NAFTA? 1) Highly skilled people in Mexico 2) Unskilled people in U.S. 3) Capital owners in Mexico 4) Unskilled people in Mexico
Given a concave PPC and l-curve in country Y for goods A and B, state the conditions for maximum output and consumption if the country engages in exporting good to country Z and importing good B from country Z.
Consider the Specific Factors model with two countries, Home and Foreign, with two goods, cars (c) and pharmaceutical drugs (d), and three factors, capital K, skilled labour S, and unskilled labour L. The production functions are given by F.(Ke, Le) = K. Lễ and Fa(Ka, Sa) = K}S}. That is, skilled labour is specific to pharmaceutical drugs, and unskilled labour to cars. Suppose that the countries' factor endowments are KH = 2 = KF, L# and LF = 3/2, and SH = 1 and SF = 1 1/2, so that the total labour force is 2 in both countries. The price of capital is denoted by r, the price of skilled and unskilled labour by w, and w. Denote the goods' prices by pc and pd, and normalise pd 1 for simplicity. The demand for cars and drugs in country j = H, F is given by x and r: 1Yi 2Yi and x 3 ре || 3 pi where Y' denotes aggregate income in country j. (c) Compute the autarky equilibrium in Foreign and show that p > p. Compare equilibrium prices in Home and in Foreign and explain.

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