2 INTERNATIONAL ECONOMICS IProblem: Consider a Hecksher-Ohlin model where home and foreign countries produce twogoods; food & cloth.Goods are produced with capital and labor. Factor substitution is not possible. (isoquants areL-shaped) The fixed unit labor (L) and capital (K) requirements for both countries are:aLc=2, akc=1,aLF=1, akr=2The endowments of labor and capital are:L=K=300 for home country,L=300 K*= 240 for foreign country.a) Which one is the labor-intensive industry ?Cloth aLc=2, akc=1 [aLc/ akc=2/1]Food aLF=1, axr=2 (ar/ akr=1/2]is the labor intensive industry.b) Which country is labor-abundant? (Compare relative abundance of labor in the twocountries.)is the labor abundant country.

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Problem: Consider a Hecksher-Ohlin model where home and foreign countries produce two goods; food & cloth. Goods are produced with capital and labor. Factor substitution is not possible. (isoquants are L-shaped) The fixed unit labor (L) and capital (K) requirements for both countries are: aLc=2, akc=1, a=1, akr=2 The endowments of labor and capital are: L=K=300 for home country, L=300 K*= 240 for foreign country. a) Which one is the labor-intensive industry ? Cloth aLc=2, akc=1 [ac/ akc=2/1) Food au 1, ax 2 (aLF/ akr-1/2) is the labor intensive industry.

Problem: Consider a Hecksher-Ohlin model where home and foreign countries produce two goods; food & cloth. Goods are produced with capital and labor. Factor substitution is not possible. (isoquants are L-shaped) The fixed unit labor (L) and capital (K) requirements for both countries are: aLc=2, akc=1, a=1, akr=2 The endowments of labor and capital are: L=K=300 for home country, L=300 K*= 240 for foreign country. a) Which one is the labor-intensive industry ? Cloth aLc=2, akc=1 [ac/ akc=2/1) Food au 1, ax 2 (aLF/ akr-1/2) is the labor intensive industry.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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