4. Consider a world that consists of two countries, Australia and New Zealand. Both countries produce and consume two goods, wool and mutton. Technologies in both countries are as follows: Wool Production Mutton Production Labour input required Capital input required 3 3 6. New Zealand 1000 Factor endowments are as follows: Australia 450 Labour Сapital 450 900 NOTE: no calculations are required in this question! a. In one K-L space graph and using the Hecksher-Ohlin (HO) assumption of variable K-L ratios, produce isoquant and isocost curves for Australia and NZ in autarky. Show a common isoquant for mutton and then show two isoquants for wool. Use this graph to deduce which country has the lower autarky rel P of wool. Explain. b. If Australia and New Zealand trade with each other, what will the pattern of trade be? Why (i.e. what theorem)? In one graph with wool output on the horizontal axis, show both countries' PPFS and show each country's complete eqm in both autarky and FT. Be sure to indicate both countries' X and M under FT. c. Who in Australia would oppose the opening of free trade? Why? Who in Australia would lobby for free trade? Why (that is, what theorem?) d. What will be the relationship between the FT wages in Australia and the FT wages in New Zealand? Why (that is, what theorem)? e. Draw a graph that depicts the relationship between the relative (rel.) P of mutton and rel. factor payments in autarky and FT for both countries. Explain all change(s) by referring to the appropriate theorem(s).
4. Consider a world that consists of two countries, Australia and New Zealand. Both countries produce and consume two goods, wool and mutton. Technologies in both countries are as follows: Wool Production Mutton Production Labour input required Capital input required 3 3 6. New Zealand 1000 Factor endowments are as follows: Australia 450 Labour Сapital 450 900 NOTE: no calculations are required in this question! a. In one K-L space graph and using the Hecksher-Ohlin (HO) assumption of variable K-L ratios, produce isoquant and isocost curves for Australia and NZ in autarky. Show a common isoquant for mutton and then show two isoquants for wool. Use this graph to deduce which country has the lower autarky rel P of wool. Explain. b. If Australia and New Zealand trade with each other, what will the pattern of trade be? Why (i.e. what theorem)? In one graph with wool output on the horizontal axis, show both countries' PPFS and show each country's complete eqm in both autarky and FT. Be sure to indicate both countries' X and M under FT. c. Who in Australia would oppose the opening of free trade? Why? Who in Australia would lobby for free trade? Why (that is, what theorem?) d. What will be the relationship between the FT wages in Australia and the FT wages in New Zealand? Why (that is, what theorem)? e. Draw a graph that depicts the relationship between the relative (rel.) P of mutton and rel. factor payments in autarky and FT for both countries. Explain all change(s) by referring to the appropriate theorem(s).
Chapter2: Economic Tools And Economic Systems
Section: Chapter Questions
Problem 3.5P
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Parts c and d in the attached image please
Transcribed Image Text:4. Consider a world that consists of two countries, Australia and New Zealand. Both countries produce and consume two
goods, wool and mutton. Technologies in both countries are as follows:
Wool Production
Mutton Production
Labour input required
Capital input required
3
3
6.
New Zealand
1000
Factor endowments are as follows:
Australia
450
Labour
Сapital
450
900
NOTE: no calculations are required in this question!
a. In one K-L space graph and using the Hecksher-Ohlin (HO) assumption of variable K-L ratios, produce
isoquant and isocost curves for Australia and NZ in autarky. Show a common isoquant for mutton and then show two
isoquants for wool. Use this graph to deduce which country has the lower autarky rel P of wool. Explain.
b. If Australia and New Zealand trade with each other, what will the pattern of trade be? Why (i.e. what
theorem)? In one graph with wool output on the horizontal axis, show both countries' PPFS and show each country's
complete eqm in both autarky and FT. Be sure to indicate both countries' X and M under FT.
c. Who in Australia would oppose the opening of free trade? Why? Who in Australia would lobby for free
trade? Why (that is, what theorem?)
d. What will be the relationship between the FT wages in Australia and the FT wages in New Zealand? Why
(that is, what theorem)?
e. Draw a graph that depicts the relationship between the relative (rel.) P of mutton and rel. factor payments in
autarky and FT for both countries. Explain all change(s) by referring to the appropriate theorem(s).
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