There are two countries, Country A and Country B producing two goods, computers (C) and beef...

Transcribed Image Text:

There are two countries, Country A and Country B producing two goods, computers (C) and beef (B), using labour (L) and capital (K) in the Heckscher-Ohlin type world. The computer industry is K-intensive and the beef industry is L-intensive. Country A is K-abundant and Country B is L-abundant. Answer the following on the basis of this information. (a) Draw the PPF curves for the two countries Check if the two PPFs are consistent with what you know about the countries' capital and labour abundance and the capital and labour intensity of production. Identify the autarky equilibrium for each country. (3 marks) (d) Assume that the two countries have the same relative demand for beef. Draw a graph with the common relative demand curve and the two different relative supply curves of beef and conclude which country has the higher autarky relative prices of beef. (3 marks) (e) Explain why the free trade relative price of beef will settle between the two autarky relative prices of beef. Use a graph to explain. (2 marks) (f) Show production and consumption points for autarky and free trade for Country A Identify on your diagram imports and exports. Show that Country A as a whole is better off with trade than with autarky. Make sure you explain your answer fully. (4 marks) (g) Will free trade lead to an equalization of wage rate between Country A and Country B? Explain why or why not. Use examples to answer your questions. (4 marks) There are two countries, Country A and Country B producing two goods, computers (C) and beef (B), using labour (L) and capital (K) in the Heckscher-Ohlin type world. The computer industry is K-intensive and the beef industry is L-intensive. Country A is K-abundant and Country B is L-abundant. Answer the following on the basis of this information. (a) Draw the PPF curves for the two countries Check if the two PPFs are consistent with what you know about the countries' capital and labour abundance and the capital and labour intensity of production. Identify the autarky equilibrium for each country. (3 marks) (d) Assume that the two countries have the same relative demand for beef. Draw a graph with the common relative demand curve and the two different relative supply curves of beef and conclude which country has the higher autarky relative prices of beef. (3 marks) (e) Explain why the free trade relative price of beef will settle between the two autarky relative prices of beef. Use a graph to explain. (2 marks) (f) Show production and consumption points for autarky and free trade for Country A Identify on your diagram imports and exports. Show that Country A as a whole is better off with trade than with autarky. Make sure you explain your answer fully. (4 marks) (g) Will free trade lead to an equalization of wage rate between Country A and Country B? Explain why or why not. Use examples to answer your questions. (4 marks)

Answer rating: 100% (QA)

Question Country A is capital abundant country and computer is capital intensive good and therefore country A produces more computers and less beef an... View the full answer