Consider two countries (Russia and India) that can produce two goods (Books and Automobiles) using two factors of production (Economists and Workers). Assume the regular assumptions of the Hecicscher-Ohl in model apply and that factor endowments between the two countries are given by:
__________________Russia__________India
Economists.................240...................80
Workers.................12,360...............2,480
Likewise assume that average factor requirements for Books and Automobiles (in both Russia and India) are given by:
__________________Books___________Automobiles
Economists....................2...............................1
Workers.....................560............................432
(a) Which country has a comparative advantage in which good? What will be the pattern of trade. Explain.
(b) Demonstrate your answer to (a) by drawing PPF's and price lines (both autarky and world) for both Russia and India (place auto's on the x-axis). On each picture label the autarky production/consumption point A, the production point after trade B and the consumption point after trade C (note: you cannot solve for any of these points. I will just be checking that your pictures and where you place these points are consistent with the answer to (a)).
(c) Will Economists in the Automobile industry in Russia benefit or be hurt by trade with India in the short run? Explain.
(d) Will Economists in the Automobile industry in Russia benefit or be hurt by trade with India in the long-run? Explain.