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Hecksher-Ohlin Model Mexico and Brazil each make t-shirts and televisions. The two countries have identical preferences and technologies. T-shirt manufacturing uses labor intensively, while television manufacturing uses capital intensively. Brazil is relatively capital abundant. a) Draw a carefully labeled diagram showing possible PPFS for the two countries. In one sentence explain why they have the shapes you have drawn. b) Add preference (DD) lines and show what the two countries will produce and consume in autarky. Explain in words why at the equilibrium the indifference curve is tangent to the PPF. c) Now illustrate on your diagram the equilibrium with free trade hetween the two countries. Compare relative prices of the t-shirts and televisions in the two countries before and after the opening of trade. d) What effect will opening trade have on the wages in Mexico? Explain your answer and provide intuition. e) Do you expect that opening trade will lead to equal wages in Mexico and Brazil? Why, or why not?

Hecksher-Ohlin Model Mexico and Brazil each make t-shirts and televisions. The two countries have identical preferences and technologies. T-shirt manufacturing uses labor intensively, while television manufacturing uses capital intensively. Brazil is relatively capital abundant. a) Draw a carefully labeled diagram showing possible PPFS for the two countries. In one sentence explain why they have the shapes you have drawn. b) Add preference (DD) lines and show what the two countries will produce and consume in autarky. Explain in words why at the equilibrium the indifference curve is tangent to the PPF. c) Now illustrate on your diagram the equilibrium with free trade hetween the two countries. Compare relative prices of the t-shirts and televisions in the two countries before and after the opening of trade. d) What effect will opening trade have on the wages in Mexico? Explain your answer and provide intuition. e) Do you expect that opening trade will lead to equal wages in Mexico and Brazil? Why, or why not?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Hecksher-Ohlin Model Mexico and Brazil each make t-shirts and televisions. The two countries have identical preferences and technologies. T-shirt manufacturing uses labor intensively, while television manufacturing uses capital intensively. Brazil is relatively capital abundant. a) Draw a carefully labeled diagram showing possible PPFS for the two countries. In one sentence explain why they have the shapes you have drawn. b) Add preference (DD) lines and show what the two countries will produce and consume in autarky. Explain in words why at the equilibrium the indifference curve is tangent to the PPF. c) Now illustrate on your diagram the equilibrium with free trade hetween the two countries. Compare relative prices of the t-shirts and televisions in the two countries before and after the opening of trade. d) What effect will opening trade have on the wages in Mexico? Explain your answer and provide intuition. e) Do you expect that opening trade will lead to equal wages in Mexico and Brazil? Why, or why not?
Transcribed Image Text:Hecksher-Ohlin Model Mexico and Brazil each make t-shirts and televisions. The two countries have identical preferences and technologies. T-shirt manufacturing uses labor intensively, while television manufacturing uses capital intensively. Brazil is relatively capital abundant. a) Draw a carefully labeled diagram showing possible PPFS for the two countries. In one sentence explain why they have the shapes you have drawn. b) Add preference (DD) lines and show what the two countries will produce and consume in autarky. Explain in words why at the equilibrium the indifference curve is tangent to the PPF. c) Now illustrate on your diagram the equilibrium with free trade hetween the two countries. Compare relative prices of the t-shirts and televisions in the two countries before and after the opening of trade. d) What effect will opening trade have on the wages in Mexico? Explain your answer and provide intuition. e) Do you expect that opening trade will lead to equal wages in Mexico and Brazil? Why, or why not?
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