Suppose that in country A the income elasticity of demand for good S is less than 1,

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Suppose that in country A the income elasticity of demand for good S is less than 1, and the income elasticity of demand for T is greater than 1. Suppose also that A exports good S and imports good T, and the S is relatively capital intensive in its production and that A is relatively capital abundant. What would happen to A’s trade pattern if, alternatively,

a. A were to experience an equi-proportionate drop in K and L?

b. A were to experience a relative increase in K versus L?

c. A were to experience a relative increase in L versus K?

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International Economics

ISBN: 9780321783868

9th Edition

Authors: Steven Husted , Michael Melvin

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