Question: Assume a 2* 2* 2 model with two countries; Botswana and Ghana, producing two goods: diamonds and chocolate, and using two inputs; K and L.
Assume a 2* 2* 2 model with two countries; Botswana and Ghana, producing two goods: diamonds and chocolate, and using two inputs; K and L. The H-O assumptions hold, and chocolate is the labour intensive good. Botswana is capital abundant.
(i) Using the H-O theory, show and explain the pattern of trade and prove that trade between the two countries is beneficial and both countries gain from trade
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