Suppose both countries are in closed economy equilibria

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Consider the following Heckscher-Ohlin model. Spain and Italy produce shoes and T-shirts using capital and labor. Spain is labor abundant and Italy is capital abundant. Shoes are capital-intensive and T-shirts are labor intensive.

For each statement below determine if it is true or false. Then briefly explain why.

Suppose both countries are in closed economy equilibria.

(1) Spain has a larger labor force than Italy (i.e. ) because Spain is labor abundant.

(2) In Italy, the shoes industry employs more capital than the T-shirt industry because shoes are capital intensive.

(3) The shoes industry has a lower labor-capital ratio than the T-shirts industry in both countries.

(4) The relative price of shoes, in terms of T-shirts, is lower in Italy than in Spain.

Reference no: EM131090981

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