Similar to Home in Problem 10, Foreign also produces computers and wheat using capital, which is specific
Question:
a. Will the no-trade relative price of wheat be higher in Home or in Foreign? Explain why you expect this outcome.
b. When trade is opened, what happens to the relative price of wheat in Foreign and to the relative price of wheat in Home?
c. Based on your answer to (b), predict the effect of opening trade on the rental on land in each country, which is specific to wheat. What about the rental on capital, which is specific to computers?
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Related Book For
International Economics
ISBN: 978-1429278447
3rd edition
Authors: Robert C. Feenstra, Alan M. Taylor
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