from International Trade Theory and Evidence 1995

1. Show that, in a two-country. model, increasing the size of one country (increasing both K and L in the same proportions) will change commodity prices, factor prices, outputs, and the volume of trade in both countries, but will not change the pattern of trade. 2. How will the production possibility curves of Fig. 8.2 differ if in Fig. 8.1, Country H has moreK but the same amount of L as Country F? 3. In Fig. 8.4, why must the consumption points for both countries lie on a common ray from the origin? 4. Illustrate a case in which either or both countries could specialize completely in the presence of free trade. Does this possibility invalidate the HeckscherOhlin theorem? What about the factor-priceequalization theorem? '5. The factor-pceequalization theorem makes no assumption about demand. Nevertheless, demand conditions may well determine whether or not factor prices are equalized. Explain this seemingly paradoxical result. 6. Show that factor prices will be unequal if the technologies in the two countries differ for industry X (or Y ). 7. Show that an increase in the labor supply of a small country could either increase or decrease the volume of trade. '8. How will an increase in the supply of labor affect the terms of trade in the two-country model (recall Problem '7)