Question 1:

What is the wrong in the following statements?

(a). The Offer cure of an exporting country shifts outwards if the income of exporting country increases.

(b). If taste change in favor of imported commodities, the offer curve of importing countries outwards.

(c). if capital over labour (K/L) ratio for Belgium is higher than that for France, we would expect that Belgium will export labour intensive goods to France.

(d) If capital labor (K/L) ratio is higher in France than Spain we would except that interest rate in Prance is more than interest rate in Spain.

Question 2:

With reference to the Edgeworth Bowley Box diagram, (Assume that the production functions are homogenous of degree one. Show that

(a). the contract curve cannot cross the diagonal

(b). the points on the contract curve are the best point

Question 3:

State and explain Heckscher-Ohlin trade model with assumptions

Question 4 :

(a). Discuss the possibility of trade if factor endowments are identical and taste is different.

(b). Explain the difference between the price and the physical definition of factor abundance.