Question

2. Answer the following question under the assumptions of the Heckscher-Ohlin model. There are two industries of production: clothing (Qd) and food (Qr). Clothing is capital-intensive and food is labor-intensive. There are two countries: Home and Foreign. Home is capital abundant and Foreign is labor abundant. (Same as in class) a. Draw a "box" graph that represents the labor and capital inputs into each industry in Home b. What do the slopes of the lines drawn in part (a) represent? c. Now imagine the labor leaves the Home country. Show the effect either in part (a) above or redraw your graph. d. What happens to the production of each good in the economy? On a related noted, what happens to the amount of labor and capital used in each industry because of the change? e. What happens to real rent and real wages?

Answer 1

Anduwe two fndustries of Pieduction tuthis: auol food Capital (r) Thore La) clattrng TO Po LAbour utausiu Laber F cod Capital teusie () cletteny The ttickaclur olutin teosy Statis that diesena ta setative bactor udowments audl tactor pricesblw naties Ast as fu pactaut Caue ofthadle, A ttus PAdicts tat tach Coe of Thaole aual tt Fieat fou pactaut wati buys i the wont Parduction o wohic deal olative ty abundaut, audl cbeap tacto Caumadity fu the poduction o olich Aelativety Scara aud tepausiue factel predicts tat thadle ksft tactes fu the u post the Couu oolfty auol fuport the great oleat ot s wedte-theoy dina heed to the eduction ttthe Paices blw natious

(b) The Slepesn box dingam fu tigase Mpesetstla Clhange tn Gapttat Quantit talethung gel ac)tt spect to ut clauge fn Capital fu tha Capital utousiva home Country (d) Captal futausie beme Quantity of Capital futushue Country hotl predu.ce Mene ood. e) tothes fu eate uatities audl produ a labor utaurine gedlie, teod) audthusa by Acap fatarua tional tradle tha ougih tacto the Costs ot produatiens er the beuafits ot Eudouomeits bydncg Couctry