Suppose that there are two countries (A and B) and two goods (a labor intensive good X, textile, and a capital intensive good Y, electronics) The two countries have identical demand for the two goods but different labor and capital endowments Suppose (Px Py)A (Px Py)B in autarky Identify the capital abundant country and the labor abundant country, respectively Use a PPF indifference curve graph to identify the autarky equilibrium for country B In the same graph, show country B's gains from trade when the two countries trade at a level of Px Py that is between the two countries' autarky price ratios In the above graph, identify the trade triangle (including export and import quantities) for country B What would be the effect of trade on country B's relative nominal wage rate, i e , the ratio of nominal wage rate relative to nominal capital rental rate (w r)

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Question: Suppose that there are two countries (A and B) and two goods (a labor-intensive good X, textile, and a capital-intensive good Y, electronics). The two

Suppose that there are two countries (A and B) and two goods (a labor-intensive good X, textile, and a capital-intensive good Y, electronics). The two countries have identical demand for the two goods but different labor and capital endowments. Suppose (Px/Py)A < (Px/Py)B in autarky.

Identify the capital-abundant country and the labor-abundant country, respectively.
Use a PPF-indifference-curve graph to identify the autarky equilibrium for country B.
In the same graph, show country B's gains from trade when the two countries trade at a level of Px/Py that is between the two countries' autarky price ratios.
In the above graph, identify the trade triangle (including export and import quantities) for country B.
What would be the effect of trade on country B's relative nominal wage rate, i.e., the ratio of nominal wage rate relative to nominal capital rental rate (w/r)?

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