Suppose that the Heckscher-Ohlin model applies (identical technologies, identical homothetic tastes, and different factor endowments between...

 

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Suppose that the Heckscher-Ohlin model applies (identical technologies, identical homothetic tastes, and different factor endowments between two countries). Good X is capital-intensive and good y is labor-intensive. The country already is trading with the rest of the world. Suppose that a small labor abundant country experiences an increase in the endowment of labor. a. Using an appropriate graph, illustrate and identify how this would affect the following variables for a small country (3 points each for a total of 15): C. i. production of x and y, ii. consumption of x and y, iii. quantity of exports, iv. quantity of imports v. national income. You do NOT have to explain each effect but identify each effect clearly on you a graph. b. For this small country, explain what would happen to the wage-rental ratio as a result of this labor endowment change? (3 points) If this were a large country instead what would happen to i. The world relative price of Y (3 points) ii. The wage-rental ratio in the labor-abundant country (4 points) Suppose that the Heckscher-Ohlin model applies (identical technologies, identical homothetic tastes, and different factor endowments between two countries). Good X is capital-intensive and good y is labor-intensive. The country already is trading with the rest of the world. Suppose that a small labor abundant country experiences an increase in the endowment of labor. a. Using an appropriate graph, illustrate and identify how this would affect the following variables for a small country (3 points each for a total of 15): C. i. production of x and y, ii. consumption of x and y, iii. quantity of exports, iv. quantity of imports v. national income. You do NOT have to explain each effect but identify each effect clearly on you a graph. b. For this small country, explain what would happen to the wage-rental ratio as a result of this labor endowment change? (3 points) If this were a large country instead what would happen to i. The world relative price of Y (3 points) ii. The wage-rental ratio in the labor-abundant country (4 points)

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a i Production of x and y In the graph the production of good X and good Y will shift outward from i... View the full answer