Consider 2 countries that each produce two goods X and Y defined as follows. Assume the...

Transcribed Image Text:

Consider 2 countries that each produce two goods X and Y defined as follows. Assume the identical technologies across countries where X is K intensive, and Y is L intensive. HOME XH = f(LX, KH) YH = g(LY, TH) Ka = 10,Th = 15 Lx + Ly 10 LH - = FOREIGN XF = f(Lx, KF) YF = g(Ly, TF) KF = 10, TF = 20 Lp Lx + Ly 10 = = a) Describe the autarky equilibrium in each country. (10pts) b) Describe the short run pattern of trade between these two countries. In particular, what happens to the short run returns to K, T and L in each country? What will happen in the long run? (20pts) c) Suppose that the home country experiences immigration such that its labour supply increases to 15. Describe the impact on the free trade price, the pattern of trade and gains from trade in the short run versus the long run. (15pts) d) Assume the original data but consider foreign direct investment in the foreign country such that KF=20. Describe the impact on the free trade price, the pattern of trade and gains from trade in the short run versus the long run. (15pts) Consider 2 countries that each produce two goods X and Y defined as follows. Assume the identical technologies across countries where X is K intensive, and Y is L intensive. HOME XH = f(LX, KH) YH = g(LY, TH) Ka = 10,Th = 15 Lx + Ly 10 LH - = FOREIGN XF = f(Lx, KF) YF = g(Ly, TF) KF = 10, TF = 20 Lp Lx + Ly 10 = = a) Describe the autarky equilibrium in each country. (10pts) b) Describe the short run pattern of trade between these two countries. In particular, what happens to the short run returns to K, T and L in each country? What will happen in the long run? (20pts) c) Suppose that the home country experiences immigration such that its labour supply increases to 15. Describe the impact on the free trade price, the pattern of trade and gains from trade in the short run versus the long run. (15pts) d) Assume the original data but consider foreign direct investment in the foreign country such that KF=20. Describe the impact on the free trade price, the pattern of trade and gains from trade in the short run versus the long run. (15pts)

Answer rating: 100% (QA)

a Autarky equilibrium refers to the situation where a country produces and consumes all goods domestically without trading with other countries In this scenario each country has to allocate its resour... View the full answer