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d) Show on a graph in the (QC, QP) space (QP on vertical axis and Qc on horizontal axis) what the Production Possibility Frontier would look like and what would be the autarky equilibrium (with no trade). e) Suppose there is an increase in L, the country's labor (and no change in K). Show how, at the same relative price (Pc/PP), this would change the output of each good (Qc and QP) as well as the amount of labor and capital employed in each sector. f) Upon opening up to trade, the Home country has a greater capital stock than Foreign. What will Home export and what will Foreign export? Why?

d) Show on a graph in the (QC, QP) space (QP on vertical axis and Qc on horizontal axis) what the Production Possibility Frontier would look like and what would be the autarky equilibrium (with no trade). e) Suppose there is an increase in L, the country's labor (and no change in K). Show how, at the same relative price (Pc/PP), this would change the output of each good (Qc and QP) as well as the amount of labor and capital employed in each sector. f) Upon opening up to trade, the Home country has a greater capital stock than Foreign. What will Home export and what will Foreign export? Why?

Microeconomics: Private and Public Choice (MindTap Course List)
Microeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter3: Demand, Supply, And The Market Process
Section: Chapter Questions
Problem 10CQ
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Heckscher-Ohlin: Consider an economy with two goods (corn and potatoes), both produced using capital and labor. Both factors can freely move across sectors. The technologies for the two sectors are given by the following Cobb-Douglas production functions:

d) Show on a graph in the (Qc, Q?) space (Qp on vertical axis and Qc on horizontal axis) what the Production Possibility Frontier would look like and what would be the autarky equilibrium (with no trade). e) Suppose there is an increase in L, the country's labor (and no change in K). Show how, at the same relative price (P/Pr), this would change the output of each good (Qc and QP) as well as the amount of labor and capital employed in each sector. ) Upon opening up to trade, the Home country has a greater capital stock than Foreign. What will Home export and what will Foreign export? Why?
Transcribed Image Text:d) Show on a graph in the (Qc, Q?) space (Qp on vertical axis and Qc on horizontal axis) what the Production Possibility Frontier would look like and what would be the autarky equilibrium (with no trade). e) Suppose there is an increase in L, the country's labor (and no change in K). Show how, at the same relative price (P/Pr), this would change the output of each good (Qc and QP) as well as the amount of labor and capital employed in each sector. ) Upon opening up to trade, the Home country has a greater capital stock than Foreign. What will Home export and what will Foreign export? Why?
Qc = Ac Kc“ Lc" 1-a Qp = Ap Kp Lp' with 1>a> B> 0. The allocation of labor and capital to the two industries is subject to the resource constraints Lc + Lp = L and Kc + Kp = K where L and K are the aggregate endowments of labor and capital. Prices of corn and potato are denoted by Pc and Pp, respectively. Prices for capital and labor are denoted by R and W, respectively. Consumers have Leontief preferences, utility function U(Cc, CP) = min(Cc, CP), meaning that they want to consume the two goods in a fixed proportion of one-to-one (no substitution).
Transcribed Image Text:Qc = Ac Kc“ Lc" 1-a Qp = Ap Kp Lp' with 1>a> B> 0. The allocation of labor and capital to the two industries is subject to the resource constraints Lc + Lp = L and Kc + Kp = K where L and K are the aggregate endowments of labor and capital. Prices of corn and potato are denoted by Pc and Pp, respectively. Prices for capital and labor are denoted by R and W, respectively. Consumers have Leontief preferences, utility function U(Cc, CP) = min(Cc, CP), meaning that they want to consume the two goods in a fixed proportion of one-to-one (no substitution).
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