3. The country of Pugelovia has an endowment (total supply) of 20 units of labor and 3 units of land, whereas the rest of the world has 80 units of labor and 7 units of land. Is Pugelovia labor-abundant? Is Pugelovia land-abundant? If wheat is land-intensive and cloth is labor-intensive, what is the Heckscher-Ohlin prediction for the pattern of trade between Pugelovia and the rest of the world?

4. Read case study number 6. (Down)

Compare the differences between some countries in terms of factor endowments / net exports of oil.

advantage based on resource endowments. There is a downside, however, as the potential returns from developing an oil industry can make it difficult to develop other economic activities. This is evident in Table 4.3, which shows that oil's share of total exports is high for most countries. Most of the econo- mies listed are one-product economies. The problem of a single, valuable resource that crowds out the develop- ment of other economic activities is called a resource curse. The resource curse is not inevitable for economies with large endowments of oil or some other valuable mineral -Canada, for instance, has overcome it-but it poses a challenge and it gives caution to the idea that resources are always a path to prosperity. Other types of resource curses have been noted when a country has a sudden discovery of gold or another valuable mineral. Regardless of the resource behind the curse, in all cases where it is not overcome, labor and capital are concentrated in the extraction of one natural resource and it becomes difficult to develop a diversified economy. When the price of the dominant commodity fluctuates, national income is altered in a very short amount of time and can result in severe macroeconomic instability and alter- nating boom and bust cycles. A further problem of a large endowment of a single resource is that it often causes political turmoil. There are strong incentives to try to gain con- trol of the resource, leading to factions in leadership and political strife as different groups struggle with each other. The promise of significant wealth can easily lead to corruption in countries with weak governments, as politi- cians buy the political support they need. In the worse cases, civil war is a possibility. Not every country with resources suffers from a resource curse. Strong institutions to guard against corruption, and commitment to education, skills, and savings can develop the human capital and financial capital that a country needs in order to diversify its economy and provide for the inevitable day when the resource is no longer as valuable. Canada has done this, and the United Arab Emirates (UAE) is following a similar path.CASE STUDY Comparative Advantage in a Single Natural Resource Natural resources are a source of comparative advantage in many countries. Chile has copper, Botswana has diamonds, and Saudi Arabia has oil. Crude oil is probably the most important geopolitical resource today, and it is cer- tainly the largest resource market. In fact, other than currency trading, inter- national trade in crude oil exceeds the volume and value of any other good or service. According to the U.S. Energy Information Administration, world- wide daily exports of crude oil in 2009 were 40.2 million barrels. At an aver- age price of around $55.7 per barrel, this is equivalent to more than $2.2 billion per day. Comparative advantage in crude oil production depends largely on a coun- try's endowment of oil, and as everyone is aware, countries in the Middle East have a majority of the world's proven reserves of crude oil. Table 43 shows the ten countries with the world's largest reserves and the share of fuel prod- uets in their total exports. Oil is valuable. Consequently, when countries are endowed with crude oil reserves, capital and labor are pulled into the sector because it is the most valuable use of inputs. It is also a clear example of following comparative TABLE 4.3 Ten Largest Oil Reserves Country Reserves* (2011) (Fuel Exports + Total Exports) x 100 Saudi Arabia 265.7 80.7 Canada 178.1 20.0 Iran 136.2 74.2 Iraq 115.0 98.2 Kuwait 104.0 83.4 Venezuela 99.4 90.0 UAE 97.8 32.5 Russia 60.0 57.0 Libya 43.7 88.6 Nigeria 36.2 83.9 "Billions (thousands of millions) of barrels, green current technology. Sources: U.S. Energy Information Administration, World Tude Organization