How does opening to trade affect the relative price

Reference no: EM133287656

Consider a Heckscher- Ohlin model with two countries, Home and Foreign, two goods, tomatoes and wheat, and two factors of production, labor and land. Countries have identical technologies, so that a unit of tomatoes takes 10 hours of labor and 5 acres of land, and a unit of wheat takes 4 hours of labor and 8 acres of land. Assume Home has 100 hours of labor and 80 acres of land, while Foreign has 60 hours of labor and 40 acres of land.

How does opening to trade affect the relative price of wheat in Home?

Show graphically that both Home and Foreign get more consumption under free trade than under autarky.

Reference no: EM133287656

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