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Q. If trade were to open up between R and P, where could the world terms of trade locate in the figure above (somewhere on the PC/PF axis)? Could relative wages (w/r) in the two countries become equal? Is this consistent with the Heckscher- Ohlin model? Explain.
Answer: The terms of trade would settle somewhere among the two autarky relative prices on the PC/PF axis. The relative wages (w/r) will be inferior to the highest and higher than the lowest on the vertical axis above however will not coincide. This final result is in contradiction to the factor price equalization expectation we have from the model.
What constitutes the basis for trade? What are the gains from trade in terms of production and consumption? Use theories and examples from a country of your choice.
critically evaluate Adam Smith''s theory of absolute advantage,outlining the assumptions necessary for the theory to hold in its purest form.what are the criticisms of this theory
Q. If trade were to open up between R and P, where could the world terms of trade locate in the figure above (somewhere on the PC/PF axis)? Could relative wages (w/r) in the two c
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