Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consider the simple Heckscher-Ohlin model discussed in class, with two countries, two goods, and two factors, and incomplete specialization . The two countries are China

Consider the simple Heckscher-Ohlin model discussed in class, with two countries, two goods, and two factors, and incomplete specialization. The two countries are China and the United States, the two factors are capital and labor, and the two goods are computers and textiles. You are given the following data on the factor endowments for China and the United States. China has a labor force of 50 million workers, and a capital stock of 10 thousand machines. The United States has a labor force of 25 million workers, and a capital stock of 50 thousand machines. Assume that machines and workers are comparable units.

1.) Suppose that the production of computers is capital intensive relative to textiles. Using the Lerner diagram, show graphically the equilibrium allocation of capital and labor in each industry in each country. Which country will have comparative advantage?

2.) Use a figure to show whether free international trade improves the standard of living in China and the United States as a whole, or not.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

International Marketing And Export Management

Authors: Gerald Albaum , Alexander Josiassen , Edwin Duerr

8th Edition

1292016922, 978-1292016924

More Books

Students also viewed these Economics questions