the United States both produce cars and maple syrup using capital (K) and labour (L) only. Car mranufacturing is capital intensive and maple syrup agriculture is labour intensive using QCAR=KM3LM5 and QMAPLE.SYRUP=KA3LA3. Furthermore Canada is relatively capital abundant compared to the United States. (a) (4 marks) In which country is the relative price of the capital-intensive good (PMsPc) higher before trade occurs and why? (b) (2 marks) What will happen to the relative price of cars (PMSPc) in Canada following trade between Canada and the United States? (c) (2 marks) What will happen to the relative price of cars (PMSPc) in the United States following trade between Canada and the United States? d). (6 marks) Show what happens to the production of maple syrup and cars in Canada using a production-possibilities frontier (PPF) curve following trade between Canada and the United States. Have cars on the x-axis and maple syrup on the y-axis. Your graph should indicate relative prices on the PPF and show distinct consumption and production points under autarky and under trade. (Hint: do not solve for the equilibrium mathematically, just show possible points that are intuitive). (e). (6 marks) The Canadian trade minister is contemplating signing a free trade agreement with Brazil, Brazil is a labour abundant country relative to Canada, and they need your economic expertise before deciding what to do. What would the HO model predict regarding the trading behaviour (export/import) between these two countries following the free trade deal and why? Who in Canada would be against signing a free trade deal with Brazil and why? the United States both produce cars and maple syrup using capital (K) and labour (L) only. Car mranufacturing is capital intensive and maple syrup agriculture is labour intensive using QCAR=KM3LM5 and QMAPLE.SYRUP=KA3LA3. Furthermore Canada is relatively capital abundant compared to the United States. (a) (4 marks) In which country is the relative price of the capital-intensive good (PMsPc) higher before trade occurs and why? (b) (2 marks) What will happen to the relative price of cars (PMSPc) in Canada following trade between Canada and the United States? (c) (2 marks) What will happen to the relative price of cars (PMSPc) in the United States following trade between Canada and the United States? d). (6 marks) Show what happens to the production of maple syrup and cars in Canada using a production-possibilities frontier (PPF) curve following trade between Canada and the United States. Have cars on the x-axis and maple syrup on the y-axis. Your graph should indicate relative prices on the PPF and show distinct consumption and production points under autarky and under trade. (Hint: do not solve for the equilibrium mathematically, just show possible points that are intuitive). (e). (6 marks) The Canadian trade minister is contemplating signing a free trade agreement with Brazil, Brazil is a labour abundant country relative to Canada, and they need your economic expertise before deciding what to do. What would the HO model predict regarding the trading behaviour (export/import) between these two countries following the free trade deal and why? Who in Canada would be against signing a free trade deal with Brazil and why
