Question
We have 2 countries South Korea and the USA. Assume that differences in per capita GDP reflect absolute technology differences. Further assume that these two
We have 2 countries South Korea and the USA. Assume that differences in per capita GDP reflect absolute technology differences. Further assume that these two countries produce and consume only 2 goods: one that is technologically advanced (good A) and one that is not-so-technologically advanced (good B). Labor is the only factor of production and it is more abundant in the US than in South Korea. The US has an absolute advantage in the production of both goods and a comparative advantage in the production of good A. Next, suppose that trade with the US improves South Korea's productivity in both goods-however, more so in the production of the good it imports (due to backward engineering). Nothing happens to technology in the advanced economy. Explain, using the Ricardian trade model, how-compared to an initial trade equilibrium-the production possibility frontiers (PPF), absolute and comparative advantage, as well as overall welfare and the gains from trade evolve for South Korea and the US in such a case
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