Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Can you possible help with this international trade (economics) question? (HO model, with two goods and with two factors of production) Suppose that at current
Can you possible help with this international trade (economics) question?
(HO model, with two goods and with two factors of production) Suppose that at current factor prices a ton of steel is produced using 2 work-hours (L) and 2 machine-hours, and a ton of rice is produced using only 1 work-hours (L) and 3 machine-hours. Suppose that the economy's total resources are 2000 units of work-hours and 3000 units of machine-hours. Initially, Ps = $200/ton & P, =$160/ton. i. Draw the production possibility frontier with steel on the vertical axis and rice on the horizontal axis. ( 6 points) ii. Write down the unit cost of producing one ton of steel and one ton of rice as a function of the hourly wage rate (w) and the rental rate (r). In a competitive market, these costs will be equal to the prices of steel and rice. Solve for the factor prices w and r. ( 7 points) iii. Now suppose that the labor supply increases to 2500 hours. State and prove the Rybczynski theorem. ( 6 points) iv. Suppose P, increases to $200/ton (from the initial situation).State and prove the Stolper-Samuelson theorem. (6 points)Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started