Question
Question 2. (5 points): This question is based on Heckscher-Ohlin (HO) Model Suppose two countries, Grainland and Carsland, use only capital and labor to produce
Question 2. (5 points): This question is based on Heckscher-Ohlin (HO) Model
Suppose two countries, Grainland and Carsland, use only capital and labor to produce two goods, Grain (G) and Cars (C). Grainland has 2,050 units of capital and 916 units of labor, and Carland has 816 units of capital and 270 units of labor. In Carsland, there are 366 units of capital and 135 units of labor employed in the Grain industry. In Grainland, there are 926 units of capital and 618 units of labor employed in the Grain industry.
A. Which country is labor-abundant? Which country is capital-abundant? In Carsland which industry is labor-intensive and why?
B. Suppose that Grainland and Carsland do not engage in international trade. Assuming the countries have identical preferences, which country would have the cheaper relative price of Grain?
C. Now suppose the two countries trade with one another. What will happen to the relative price of Grain in Grainland? What is the effect of free trade on labor and capital owners in Grainland?
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