Consider the following Heckscher-Ohlin model where Home is a large country that produces two products, agriculture (A) and manufacturing (M), using labour (L) and capital (K) respectively. Workers are paid a nominal wage w and capital earns nominal income

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Consider the following Heckscher-Ohlin model where Home is a large country that produces two products, agriculture (A) and manufacturing (M), using labour (L) and capital (K) respectively. Workers are paid a nominal wage w and capital earns nominal income

(a) [5 marks] Suppose that Home’s capital endowment decreases, and for now let the world relative price of A remain unchanged. You can assume that Home’s labour endowment remains unchanged. Copy the PPF diagram above and use it to fully illustrate Home’s new PPF after the decrease in capital. Identify a new equilibrium and label it X2.

business-economics

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Consider the following Heckscher-Ohlin model where Home is a large country that produces two products, agriculture (A) and manufacturing (M), using labour (L) and capital (K) respectively. Workers are paid a nominal wage w and capital earns nominal income

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Consider the following Heckscher-Ohlin model where Home is a large country that produces two products, agriculture (A) and manufacturing (M), using labour (L) and capital (K) respectively. Workers are paid a nominal wage w and capital earns nominal income

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Consider the following Heckscher-Ohlin model where Home is a large country that produces two products, agriculture (A) and manufacturing (M), using labour (L) and capital (K) respectively. Workers are paid a nominal wage w and capital earns nominal income