There are two countries, NZ and AUS, which use the same technology forproduction of food and cloth. The labour (L) and capital (K) endowmentsare L = 100 and K = 60 for NZ, and L = 50 and K*20 for AUS. The inputsused in production in NZ and in AUS are given in the following table:NZAUSLabour Capital | Labour CapitalFood aLF = 4aKF = 3| aif = 6 akF = 2Clotha LCакс5aic = 8 akc = 4%3D%3D(d) What is the level of free trade relative price of cloth compared to thetwo autarky relative prices of cloth?(e) Which country exports what? Relate the answer to the Heckscher-Ohlin Theorem. Illustrate the imports and exports.(f) Show using indifference curves that both countries gain from trade.

Answer d) In the Absence of trade, the equilibrium point is 1 Where the relative demand curve is…

There are two countries, NZ and AUS, which use the same technology for production of food and cloth. The labour (L) and capital (K) endowments are L = 100 and K = 60 for NZ, and L = 50 and K* = 20 for AUS. The inputs used in production in NZ and in AUS are given in the following table: NZ AUS Labour Capital Labour Capital Food aLF = 4 aKF = 3 aiF = 6 akr=2 = 5 | aic = 8 akc = 4 Cloth aLC = 6 акс

There are two countries, NZ and AUS, which use the same technology for production of food and cloth. The labour (L) and capital (K) endowments are L = 100 and K = 60 for NZ, and L = 50 and K* = 20 for AUS. The inputs used in production in NZ and in AUS are given in the following table: NZ AUS Labour Capital Labour Capital Food aLF = 4 aKF = 3 aiF = 6 akr=2 = 5 | aic = 8 akc = 4 Cloth aLC = 6 акс

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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