QUESTION 1. Consider a standard Heckscher-Ohlin model with two countries: Germany is capital-abundant; Malaysia is labour- abundant. Each country uses labour and capital to produce two goods: Good 1 is labour-intensive and Good 2 is capital-intensive. Under
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QUESTION 1.
Consider a standard Heckscher-Ohlin model with two countries: Germany is capital-abundant; Malaysia is labour-
abundant. Each country uses labour and capital to produce two goods: Good 1 is labour-intensive and Good 2 is
capital-intensive. Under free trade, the world relative
(a) Lower than the relative price of Good 2 under autarky in Malaysia.
(b) Lower than the relative price of Good 2 under autarky in Germany.
(c) Lower than the autarky relative price of Good 2 in both countries.
(d) Higher than the autarky relative price of Good 2 in both countries.
Explain why.
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- In the Heckscher-Ohlin-Vanek model with trade a country that is labour abundant will export the good that is labour intensive. export the good that is capital intensive. have positive trade balance have positive labour content of trade.Explain, with a two-country, two-good model, why the Heckscher-Ohlin model predicts only partial specialisation in the production of two goods, while Ricardo's comparative advantage model predicts full specialisation when opening up to international trade. You can opt to present your explanation with the aid of diagrams.Consider the two countries of Syria and UAE. A business man wants to do trade between the two countries. If Syria produces maximum of 2 million kilograms of tomato and maximum of 4000 kilograms of Halwa, then draw the production possibility frontier What is the absolute value of the slope of this production possibility frontier? In the 2-factor, 2-good Heckscher-Ohlin model, why the two countries are different? What will happen when Syria's currency depreciates? What type of contract is he involved if he negotiates over the exchange rate for 30 days in future?
- 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.Assume that Trinbago is a small country that produces wine and motor vehicles, where motor vehicles are capital intensive. Trinbago is also capital intensive, and the standard Heckscher -Ohlin (H-O) assumptions hold. The other country in the model is Vincyland. Questions: Give a short background on the Heckscher-Ohlin Trade model and then answer the following questions. (a) Based on the H-O assumptions, which good should Vincyland export, and why? (b) What trade pattern would occur if the Leontief Paradox holds? (c) Which two (2) explanations of the Leontief Paradox most strongly support the H-O theory? Give the reasons. (d) In autarky, according to Ohlin, how does Trinbago’s relative price of labour compare to Vincyland’s? (e) Show the necessary graphs to fully explain all requested effects. Ensure to label graphs and give brief explanations. (f) Given that Vincyland is a small country, examine the partial equilibrium welfare effects associated with imposing a tariff on their import…Comment on the following statement: “An examination of the Ricardian model of comparative advantage yields the clear result that trade is (potentially)beneficial for each of the two trading partners since it allows for an expanded consumption choice for each. However, for the world as a whole, the expansion of production of one product must involve a decrease in the availability of the other, so that it is not clear that trade is better for the world as a whole as compared to an initial situation of non-trade (but efficient production in each country). ”
- Consider a 2x2x2 Heckscher-Ohlin model with two countries, Australia and Japan. Australia produces two goods, wine and software. Production of wine is relatively labor intensive, and Australia is relatively capital abundant. a. Using the production possibility frontier diagram, show how Australia can be better off once it engages in trade. Explain your answer. b. Derive the Stopler-Samuelson and Rybczynski theorems, using fully labelled graphs to support your answers. c. Suppose Australia imposes a tariff on importing goods, which raises the relative price of the import-competing sector's output. How does the Stolper-Samuelson theorem predict about changes in factor prices in Australia? Why? Explain your answer. c. Suppose the amount of capital stock increased in Australia. What is the prediction of the Rybczynski theorem on changes in the production amounts of wine and software in Australia (use the production possibility frontier diagram to illustrate your answer, fully label…Please answer for Question B Background: Country A is a relatively “rich” (developed) country, while country B is a relatively “poor” developing country. The model we will be using for trade is a simple supply and demand diagram where any amount can be bought or sold at the world price. If the world price is above the 'no trade' (autarky) price, there are exports, and if it is below there are imports. Both countries are small, so their actions do NOT have an impact on the world price. Question A: Suppose the demand in the poor country is P=100- 9Q and supply is P=Q. Suppose the supply in the poor country is different from the one in country A only because it faces less strict environmental regulations. That is, in country B it costs firms Q to produce Q units, whereas it costs 2Q in country A to produce quantity Q. Draw country B’s demand and supply diagram in 'autarky' with the standard axes (P vertical, Q horizontal) and then work out the equilibrium. How large is welfare under…Assume that Trinbago is a small country that produces wine and motor vehicles, where motor vehicles are capital-intensive. Trinbago is also capital intensive, and the standard Heckscher -Ohlin (H-O) assumptions hold. The other country in the model is Vincyland. Questions: Give a short background on the Heckscher-Ohlin Trade model and then answer the following questions. (a) Based on the H-O assumptions, which good should Vincyland export, and why? (b) What trade pattern would occur if the Leontief Paradox holds? Which two (2) explanations of the Leontief Paradox most strongly support the H-O theory? Give the reasons. (c) In autarky, according to Ohlin, how does Trinbago’s relative price of labor compare to Vincyland’s?
- Country X has a comparative advantage in producing paper and country Y has a comparative advantage in producing watches. The two countries, however, decide not to specialize and trade. What could explain this decision? (Pick either a, b, c or d) a) there is perfect mobility of factors of production between the countries b) trade is based on absolute rather than comparative advantage c) transport costs are low relative to the opportunity cost differences between the countries d) The exchange rate lies within the countries opportunity cost ratiosIn the Heckscher-Ohlin model the factor that a country is abundant in will gain from trade, i.e. its income will increase. True FalseStarting from an autarky (no-trade) situation with Heckscher-Ohlin model, if Country H is relatively labor abundant, then once trade begins .. A. wages should rise and rents should fall in HB. wages and rents should fall in HC. wages and rents should rise in HD. wages should fall and rents should rise in H
