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Question 4 {20Point51 Consider the following data in a HeckscherOhlin model with two goods (wine and cheese) and two factors (capital and labor). Cheese (1
Question 4 {20Point51 Consider the following data in a HeckscherOhlin model with two goods (wine and cheese) and two factors (capital and labor). Cheese (1 tonne) Wine (1 kilo litres) Total Endowment Capital (Hours) 10 2,500 hours 0 Labor (Hours) 2 Assuming that the resource constrained can be represented with the following general equations: 5,500 hours aKch + HKWQw E K aLch + Lwa = L where: an E unit capital requirement in cheese am: E unit capital requirement in wine am E unit labor requirement in cheese (JLW E unit labor requirement in wine I. E Labor endowment K E Capital endowment a) Solve for the equilibrium output levels of wine and cheese [4 Points]. b) Suppose the labor endowment falls by 700 hours from 5,500 hours to 4800 hours. Solve for the new equilibrium output levels of wine and cheese [4 Points]. c) Suppose the labor endowment increases to 6000 hours. Solve for the new equilibrium output levels of wine and cheese [4 Points]. (1) Identify which good is labor intensive and which is capital intensive [4 Points]
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