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Question 3 (14 marks) Suppose that, because of a trade agreement between South Africa and Zimbabwe barriers to trade are lifted, such that these countries
Question 3 (14 marks) Suppose that, because of a trade agreement between South Africa and Zimbabwe barriers to trade are lifted, such that these countries can freely trade both goods without any costs. Also, Zimbabweans and South Africans enjoy cell phones and rice. Suppose that these are the only two products they consume and produce with rice being relatively more labour intensive and cell phones being relatively more capital intensive in the production process ( and all = 0.20 and South Africa is a hub for new technology and capital. As a result of the lack of innovation in Zimbabwe, 2000 units of Zimbabwe capital stock has been relocated to South Africa Assume that the capital and labour market are in equilibrium. Using an Edgeworth box and the Rybczynski proposition describe the effects of capital on the production of cell phones and rice in South Africa. [10]
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