Use the following information to answer the questions below – Assume the following:

(Alk/Akx)> (Aly/Aky) and (La/Ka)< (Lb/Kb)

Where “a” gives you the amount of labor and capital going into the production of good X and good Y respectively based on technology in the two countries A and B. There is no taste bias.

Based on your understanding of the relationships above good X is ___________(labor/capital) intensive and good Y is _________(labor/capital intensive). Next, Country A is ____________(capital/labor abundant and Country B is ____________ (capital/labor) abundant.

Label the autarky consumption/ production points, draw the pre trade or domestic price ratio, and then draw the international price line and the label the free trade production/consumption points with the indifference curves, trade triangles, labeling the Exp and Imp! Write out the pre trade price ratio, the international price line, show the gains from trade and write out the pattern of trade!

Do these countries completely specialize post trade - why or why not? Explain! 

Answer rating: 100% (QA)

AlxAkx AlyAky means that the product x is labor intensive good and good y is capital intens... View the full answer