A5 The following question relates to the H -O theory of trade. Suppose there are two countries, Nation I and Nation Il wheretwo goods are produced, X and Y using two resources, labor and capital. X is a relatively capital intensive and Y is relativelylabor intensive. The two countries have identical preferences.(a) Refer to the graph below. Which country has a relative abundance of labor? What explains the shape of the two PPCS?What is the implication about the opportunity cost of X and the opportunity cost of Y?Nation 2140Nation 1B'1201001008080E'60604040Pe=12020CPa=10.1030507090110 130 15040608010012020 (b) If the two countries are not trading with one another, where is the relative price of X higher?(c) Suppose the two countries engage in trade. What is the international terms of trade?. What is the effect of free tradebetween the two countries on1. Respective consumption of X and Y, are they better off?2. Home price of X and Y in US?3. Employment in the X industry in Nation 1?4. Production of Y in Nation II?(d) What is the Stolper-Samuelson theorem? Following this theorem what will happen to wages in Nation I and the price ofcapital in Nation II? Explain.

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The following question relates to the H- O theory of trade. Suppose there are two countries, Nation two goods are produced, X and Y using two resources, labor and capital. X is a relatively capital intensive and Y is relatively labor intensive. The two countries have identical preferences. Jon II where (a) Refer to the graph below. Which country has a relative abundance of labor? What explains the shape of the two PPCS? What is the implication about the opportunity cost of X and the opportunity cost of Y? Nation 2 140 Nation 1 120 100 100 80 80 60 60 A' 40 - Pe=1 20 Pa=1 20- C 10 30 50 70 90 110 130 150 40 60 80 100 120 20 40

The following question relates to the H- O theory of trade. Suppose there are two countries, Nation two goods are produced, X and Y using two resources, labor and capital. X is a relatively capital intensive and Y is relatively labor intensive. The two countries have identical preferences. Jon II where (a) Refer to the graph below. Which country has a relative abundance of labor? What explains the shape of the two PPCS? What is the implication about the opportunity cost of X and the opportunity cost of Y? Nation 2 140 Nation 1 120 100 100 80 80 60 60 A' 40 - Pe=1 20 Pa=1 20- C 10 30 50 70 90 110 130 150 40 60 80 100 120 20 40

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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