The country of Moreland is currently operating under autarky. It produces two goods, textiles and automobiles, using capital and labor. At current factor prices, textile production uses equal amounts of labor and capital, while automobile production uses one unit of labor for every two units of capital. Moreland is considering opening to trade with five different countries. Note that Moreland's capital or labor abundance, and thus its comparative advantage, may vary relative to the different countries) If Moreland opens to trade with Country A, the relative price of textiles will increase in Country A. In which good does Moreland have a comparative advantage? Explain. а. b. If Moreland opens to trade with Country B, the relative demand for labor falls in Moreland. Is Moreland land or labor abundant relative to Country B? Explain. If Moreland opens to trade with Country C, rental-wage ratio falls in Country C. In which product does Moreland have a lower relative price under autarky, compared to country C? Explain. с. d. If Moreland opens to trade with Country D, the share of the labor force in Country D employed in automobile production will rise. How does the capital-labor ratio change in textile production in Moreland? Explain. If Moreland opens to trade with Country E, the capital-labor ratio rises in automobile production in Moreland. Which good does Moreland import? Explain. е.
The country of Moreland is currently operating under autarky. It produces two goods, textiles and automobiles, using capital and labor. At current factor prices, textile production uses equal amounts of labor and capital, while automobile production uses one unit of labor for every two units of capital. Moreland is considering opening to trade with five different countries. Note that Moreland's capital or labor abundance, and thus its comparative advantage, may vary relative to the different countries) If Moreland opens to trade with Country A, the relative price of textiles will increase in Country A. In which good does Moreland have a comparative advantage? Explain. а. b. If Moreland opens to trade with Country B, the relative demand for labor falls in Moreland. Is Moreland land or labor abundant relative to Country B? Explain. If Moreland opens to trade with Country C, rental-wage ratio falls in Country C. In which product does Moreland have a lower relative price under autarky, compared to country C? Explain. с. d. If Moreland opens to trade with Country D, the share of the labor force in Country D employed in automobile production will rise. How does the capital-labor ratio change in textile production in Moreland? Explain. If Moreland opens to trade with Country E, the capital-labor ratio rises in automobile production in Moreland. Which good does Moreland import? Explain. е.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:The country of Moreland is currently operating under autarky. It produces two goods, textiles and
automobiles, using capital and labor. At current factor prices, textile production uses equal amounts
of labor and capital, while automobile production uses one unit of labor for every two units of
capital. Moreland is considering opening to trade with five different countries. Note that Moreland's
capital or labor abundance, and thus its comparative advantage, may vary relative to the different
countries)
If Moreland
opens to trade with Country A, the relative price of textiles will increase in Country
а.
A. In which good does Moreland have a comparative advantage? Explain.
b. If Moreland opens to trade with Country B, the relative demand for labor falls in Moreland. Is
Moreland land or labor abundant relative to Country B? Explain.
If Moreland opens to trade with Country C, rental-wage ratio falls in Country C. In which
product does Moreland have a lower relative price under autarky, compared to country C?
Explain.
с.
d. If Moreland opens to trade with Country D, the share of the labor force in Country D employed
in automobile production will rise. How does the capital-labor ratio change in textile production
in Moreland? Explain.
If Moreland opens to trade with Country E, the capital-labor ratio tises in automobile production
in Moreland. Which good does Moreland import? Explain.
e.
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