Consider the conventional Heckscher-Ohlin model of international trade, along with the Heckscher- Ohlin relationship, which shows...

 

Transcribed Image Text:

Consider the conventional Heckscher-Ohlin model of international trade, along with the "Heckscher- Ohlin relationship", which shows the relation between factor-price ratio (on the horizontal axis) and the good-price ratio (on the vertical axis). Suppose that there are two countries (A and B), producing two goods (X and Y) by using two factors of production, capital (K) and labor (L). Measured in a common currency, the wage rate (w) and the rental rate of capital (r) are given as follows in the two countries. Countries A B W 1 2 r 1 1 In both countries, technology of production for each good is the same and given as follows: • 1 unit of K and I unit of L are combined to produce 1 unit of X, and 2 units of K and 1 unit of L are combined to produce 1 unit of Y. Suppose now that the two countries open to free trade at a mutually-beneficial international good- price ratio. relationship. Under the conditions of free trade, re-draw the graph for the Heckscher-Ohlin Consider the conventional Heckscher-Ohlin model of international trade, along with the "Heckscher- Ohlin relationship", which shows the relation between factor-price ratio (on the horizontal axis) and the good-price ratio (on the vertical axis). Suppose that there are two countries (A and B), producing two goods (X and Y) by using two factors of production, capital (K) and labor (L). Measured in a common currency, the wage rate (w) and the rental rate of capital (r) are given as follows in the two countries. Countries A B W 1 2 r 1 1 In both countries, technology of production for each good is the same and given as follows: • 1 unit of K and I unit of L are combined to produce 1 unit of X, and 2 units of K and 1 unit of L are combined to produce 1 unit of Y. Suppose now that the two countries open to free trade at a mutually-beneficial international good- price ratio. relationship. Under the conditions of free trade, re-draw the graph for the Heckscher-Ohlin

Answer rating: 100% (QA)

Answer Given 1 unit of K and 1 unit ... View the full answer