Assume that Home and Foreign have the following factor endow…
Assume that Home and Foreign have the following factor endowments: Home Foreign L = 100 L*= 200 T = 25 T*= 100 a) Which country is labor abundant and which country is land abundant? If both countries have identical Leontief preferences, which country will have the lower relative price for clothes (lower Pc/Pf) in autarky? b) If the relative price of clothes increases at Home (maybe due to a change in consumer preferences such that xc > xf), discuss how this increase in the relative price of clothes at Home will affect both factor prices (w and r), the allocation of labor and land between both sectors, and the production of both goods at Home in autarky.
Read DetailsIn the Ricardian model where Home and Foreign have different…
In the Ricardian model where Home and Foreign have different technology in producing cheese and wine, if opening up to trade at Home does not lead to a change in the relative price of its goods, then all of the following are true EXCEPT:
Read DetailsIn the Ricardian model with free trade, assuming both countr…
In the Ricardian model with free trade, assuming both countries specialize in the good in which they have a comparative advantage, an increase in the size of the population in Foreign (L*) will __________ Foreign’s terms of trade and __________ Home’s terms of trade.
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