Apply the trade model to the following scenario: Two countries, China (C) and Indonesia (1) produce...

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Apply the trade model to the following scenario: Two countries, China (C) and Indonesia (1) produce two goods, sneakers (S) and electronics (E) using unskilled labor and capital. . Production of electronics is intensive in capital and production of sneakers is intensive in unskilled labor. China is relatively more abundant in capital (and skilled labor), than Indonesia which is relatively more abundant in unskilled labor. a. Explain the difference between factor intensity and abundance? Which country will produce which good and why? b. Explain why P/P < P/PS? c. Explain (using graphs) how the production possibility frontiers of China and Indonesia differ and why? d. A key point of the H-O model is that while the country gains from trade, not all factors within the country gain from trade. Explain, using a graph, why unskilled workers gain more than owners of capital in Indonesia as a result of trade? (Hint: explain any shifts in the curves, as well as the initial and resulting equilibriums. Label everything clearly.) Apply the trade model to the following scenario: Two countries, China (C) and Indonesia (1) produce two goods, sneakers (S) and electronics (E) using unskilled labor and capital. . Production of electronics is intensive in capital and production of sneakers is intensive in unskilled labor. China is relatively more abundant in capital (and skilled labor), than Indonesia which is relatively more abundant in unskilled labor. a. Explain the difference between factor intensity and abundance? Which country will produce which good and why? b. Explain why P/P < P/PS? c. Explain (using graphs) how the production possibility frontiers of China and Indonesia differ and why? d. A key point of the H-O model is that while the country gains from trade, not all factors within the country gain from trade. Explain, using a graph, why unskilled workers gain more than owners of capital in Indonesia as a result of trade? (Hint: explain any shifts in the curves, as well as the initial and resulting equilibriums. Label everything clearly.)

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a Factor intensity refers to the amount of a factor eg labor capital required to produce a good wher... View the full answer