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Application of Heckscher - Ohlin theorem.

There is a world with two countries, Canada and India. They produce robots and rugs using capital and labor. Robots are capital intensive and rugs are labor intensive. It is unknown what the supplies of capital and labor are in each country, but it is known that the relative price of robots is higher in India than in Canada in the no-trade equilibria.

a. Which country is capital abundant according to the Heckscher-Ohlin theorem?

b. Given your answer to (a), draw the PPF for Canada. Also draw the indifference curve and the relative price line for the no-trade equilibrium.

c. Given your answer to (a), draw the PPF for India. Also draw the indifference curve and the relative price line for the no-trade equilibrium.

d. Compute the slopes of the relative price lines for Canada also India that you draw in (c) and (d). What does this comparison tell you about the pattern of trade?

 

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M919628

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