Given the information in Review Questions 4.1 and 4.2, explain what happens to the gains and relative prices of goods after trade begins.

Questions 4.2

Suppose that Japan and Indonesia have the factor endowments presented in the table in Review Question 4.1. Suppose further that the production requirements for a computer are 5 machines and 10 workers, and the requirements for a unit of cloth are 2 machines and 5 workers.

a. Which good, computer or cloth, is relatively capital-intensive? Which good is labor-intensive? Explain your answer.

b. Which country would export cloth? Why?

Question 4.1

According to the following table, which country is relatively labor-abundant?

Explain your answer. Which country is relatively capital-abundant?

Transcribed Image Text:

Capital Labor Japan 10 machines 20 workers Indonesia 30 machines 50 workers