Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The attached is a question on international trade kindly help me 4. 2x2x2 Heckscher-Ohlin Consider the following Heckscher-Ohlin model. There are two countries in the

The attached is a question on international trade kindly help me

image text in transcribed
4. 2x2x2 Heckscher-Ohlin Consider the following Heckscher-Ohlin model. There are two countries in the world, H and F, and two production factors, capital K and labour L. H is endowed with Ky = 3/4 and Ly = 1/4, and F is endowed with Ky = 1/4 and LF = 3/4. There are two goods, i = 1, 2, preferences over which are given by u (21, 72) = ]"- 1/21/2. Both countries have access to the same technologies, which are given by 1 = L, and r2 = K2. The corresponding unit cost functions are c (w, ") = w and c (w, r) = r, where w and r are, respectively, the wage rate and the rental rate. All markets are perfectly competitive. (a) Compute each country's autarky equilibrium. Which variables determine the autarky equilibrium factor prices? (b) Solve for the world integrated equilibrium. Which variables determine factor prices now! (c) Assume free trade in commodities and no international factor mobility. Under which conditions will this particular model yield factor price equalization? Find the trade equilibrium's patterns of production and trade. (d) Assume now that technologies are of the Cobb-Douglas type with the following unit cost functions: c (w, r) = w /8p1/3 and cy (w, r) = w1/p2/3. Factor endowments are as above. Compute the integrated equilibrium. Draw the FPE set. Discuss whether this model still yields factor price equalization. (e) Find the new trade equilibrium's wage-rental ratios. (f) Assume now technologies are different across countries for sector 1: DI = AgLin, TO = Kan, DIF = LIF, and Top = Kap, where Ay = 9. Factor endowments are as above. Discuss whether this model still yields factor price equalization. (g) Find the new trade equilibrium's wage-rental ratios

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

Step: 3

blur-text-image

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

American Political Economy In Global Perspective

Authors: Harold L Wilensky

1st Edition

1139227920, 9781139227926

More Books

Students also viewed these Economics questions

Question

=+a) What is the standard deviation of the sample mean?

Answered: 1 week ago