question 22

Question 22 (5 points) Imagine two countries (A and B) in a Heckscher-Ohlin (factor proportions) model. Both countries can produce two goods (X and Y) using two factors: labour (L) and capital (K). Country A has a bigger K/L endowment available than country B. Suppose that good Y requires a smaller L/K ratio than good Y. The price of labour is the wage (w) and the price of capital is the rental rate (r). (a) By the predictions of the model, which country will export Y? Why? (b) How will trade affect the relative price (PX/FY) in each country? (c) How will the changes in the relative prices affect the labour-owners (workers) and the capital-owners in each country? I: 3 of) v Paragraph v B I U v 4' 0 S 5'1 x k Add a File Record Audio Record Video