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4. Use the information in the following table to answer parts (a) - (e) below. Capital/Labor Capital Labor (Billion 1966 $ Country Endowment Endowment Per
4. Use the information in the following table to answer parts (a) - (e) below. Capital/Labor Capital Labor (Billion 1966 $ Country Endowment Endowment Per 1,000 Persons) (Billion 1966 $) (1,000 Persons) Philippines 6,597 12,470 0.53 United States 785,933 76,595 10.26 Source: Harry P. Bowen, et al., "Multicountry, Multifactor Tests of the Factor Abundance Theory," American Economic Review, December 1987, pp. 806-807. (a) Define factor abundance. Which country is labor abundant? Which country is capital abundant? [4 marks] (b) Assume that aircraft production is capital intensive and that apparel production is labor intensive. Sketch the U.S. and Philippine production possibilities frontiers for aircraft and apparel. Explain why you drew them as you did. [4 marks] (c) If tastes for aircraft and apparel are identical in the United States and the Philippines, which country has a comparative advantage in which good? Explain how you know. [4 marks ] (d) Illustrate the autarky and unrestricted-trade equilibrium for the two countries. [4 marks] (e) What happens to the relative price of aircraft and apparel in each country when they open trade? [4 marks]
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