6. Optional exercise: Consider a world with two goods (beer and tulips). There are two countries (Belgium and the Netherlands) which have identical technologies and preferences. Assume that the production of tulips is relatively labor intensive while the production of beer is relatively capital intensive. Also, assume that in free trade equilibrium, Belgium only produces beer whereas the Netherlands produces both goods. (d) What will be the effect of capital mobility on factor prices in the two countries? (e) If in addition to capital mobility both countries decide to allow for labor mobility, is there going to be migration (of labor)? If yes, in which direction?

6. Optional exercise: Consider a world with two goods (beer and tulips). There are two countries (Belgium and the Netherlands) which have identical technologies and preferences. Assume that the production of tulips is relatively labor intensive while the production of beer is relatively capital intensive. Also, assume that in free trade equilibrium, Belgium only produces beer whereas the Netherlands produces both goods. (d) What will be the effect of capital mobility on factor prices in the two countries? (e) If in addition to capital mobility both countries decide to allow for labor mobility, is there going to be migration (of labor)? If yes, in which direction?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter33: International Trade

Section: Chapter Questions

Problem 19CTQ: Look at Exercise 33.2. Compute the opportunity costs of producing sweaters and wine in both France...

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How can there be any economic gains for a country from both importing and exporting the same good, like cars?
Is it possible to have a comparative advantage in the production of a good but not to have an absolute advantage? Explain.
Look at Exercise 33.2. Compute the opportunity costs of producing sweaters and wine in both France and Tunisia. Who has the lowest opportunity cost of producing sweaters and who has the lowest opportunity cost of producing wine? Explain what it means to have a lower opportunity cost.

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