Consider the Heckscher-Ohlin model of international trade. There are two goods, shoes and computers, produced with labour and capital. The production process features diminishing returns to each factor of production. The production of shoes is labour-intensive and the production of computers is capital-intensive. There are two countries, the UK and India. Denote the labour force and the capital stock of the UK and India by LUK and KUK, and LIN and KIN , respectively. The UK is capital-abundant and India is labour abundant. Describe India’s factor markets: on a graph with the labour-capital ratio (L/K) on the horizontal axis and the wage-rental ratio (W/R) on the vertical axis, depict India’s no-trade economy-wide relative demand (RD) and relative supply (RS) of labour-to-capital. Show the no-trade equilibrium wage-rental ratio.
Consider the Heckscher-Ohlin model of international trade. There are two goods, shoes and computers, produced with labour and capital. The production process features diminishing returns to each factor of production. The production of shoes is labour-intensive and the production of computers is capital-intensive. There are two countries, the UK and India. Denote the labour force and the capital stock of the UK and India by LUK and KUK, and LIN and KIN , respectively. The UK is capital-abundant and India is labour abundant.
Describe India’s factor markets: on a graph with the labour-capital ratio (L/K) on the horizontal axis and the wage-rental ratio (W/R) on the vertical axis, depict India’s no-trade economy-wide relative
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