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This question is about Heckscher-Ohlin (H-O) trade theory. Country A and country B both produce wheat and cloth. Each product needs two factor inputs, land and labor. Assume country A is labor abundant and cloth is a labor intensive good. Further assume that consumers in both countries have same preferences towards these two goods. Please answer the following questions:

a) Which country has a higher relative price of wheat before trade? Why (please provide graphical explanation; draw its PPF)?

b) Please predict the trade pattern for country A.

c) Which factor provider in country A is going to be harmed after trade?

d) Please explain factor price equalization theorem based on the information provided in the question.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M91229754

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