What the country is producing and consuming in equilibrium

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Reference no: EM13860124

Heckscher-Ohlin Model

Home (H) and Foreign (F) produce autos and shirts using capital (K) and labor (L). Autos are capital intensive relative to shirts. Home is endowed with 500 units of capital and 200 units of labor while Foreign is endowed with 100 units of capital and 50 units of labor. All the other Heckscher-Ohlin assumptions hold.

Problem 1: Draw a PPF-Budget Constraint-Indifference Curve diagram for each country that shows the autarky (no-trade) equilibrium, indicate what the country is producing and consuming in each equilibrium and the relative prices in this equilibrium.

Problem 2: Draw a PPF-Budget Constraint-Indifference Curve diagram for each country that shows the free trade equilibrium, indicate what the country is producing and consuming in each equilibrium and the relative prices in this equilibrium.

Problem 3: Suppose the two countries are trading. Then, activists in H succeed in banning trade. What happens to the real income of labor in F? Use the appropriate diagram in your answer.

Reference no: EM13860124

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