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Assume that Home and Foreign have the following factor endowments: Home Foreign L = 100 L = 200 T = 25 T = 100 a)
Assume that Home and Foreign have the following factor endowments: Home Foreign L = 100 L = 200 T = 25 T = 100 a) Which country is labor abundant and which country is land abundant? If both countries have identical Leontief preferences, which country will have the lower relative price for clothes (lower Pc/Pf) in autarky? b) If the relative price of clothes increases at Home (maybe due to a change in consumer preferences such that Xc > x(), discuss how this increase in the relative price of clothes at Home will affect both factor prices (w and r), the allocation of labor and land between both sectors, and the production of both goods at Home in autarky
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