Question
1.The following question comes from rigid technology case in Heckscher-Ohlin Model: Suppose the following table of unit labor and capital requirements for X good and
1.The following question comes from rigid technology case in Heckscher-Ohlin Model:
Suppose the following table of unit labor and capital requirements for X good and Y good is given with Home endowment of labor(L)=300 and capital (K) =200 and Foreign endowment of labor (L*) =200 and capital (K*) = 200
LaborCapital
Good X12
Good Y31
(a)Solve for equilibrium output levels for Home Country: X=Y=
(b)Solve for equilibrium output levels for Foreign Country: X*=Y*=
(c)Suppose the pre-trade price at Home Country was Px = $12 Py = $10 and at Foreign Country was Px* =$8 Py =$10. Find out wage rate (w) and rental rate (r) for Home Country.W =r=
And for Foreign Country. W* =r*=
(d)Suppose the after trade prices became Px**=$10 and Py**=$10
What is the after-trade equilibrium wage level (W**) and rental rate (r**)?
W**= __________and r** =_____________________
(e)Show how factor price equalization theorem is established:____________________________________________
(f)In the following Diagram, the above numerical example is illustrated. Identify the production -possibilities schedule for Foreign Country. Choose one from:
GQM______ FQM_____NAM_______FQW________ NAZ___________
(g)Identify the production- possibilities schedule for Home Country. Choose one from: GQM______ FQM_____NAM_______FQW________ NAZ___________
(h)Using above numerical example, identify numerically the quantity of X good produced and Y good produced at Point A: Quantity of X good=_____ Y good________
(i)Using above numerical example, identify numerically the quantity of X good produced and Y good produced at Point Q: Quantity of X good=_____ Y good________
(j)Using above numerical example, identify numerically the quantity of Y god produced at Point N: Quantity of Y good at Point N;________________
(k)Estimate the pre-trade wage/rental ratio (q=w/r) in Home Country: q=w/r=_________
(l)Estimate the pre-trade wage/rental ratio (q*=w*/r*) in Foreign Country: q*=w*/r*=_________
(m) Estimate the after-trade wage/rental ratio (q**=w**/ r**) equalized in international market: q**=w**/ r**=________________________
(n)Estimate the after-trade relative price of Food/Clothing:
Px = Px/Py=Pf/Pc =_______________________
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