Effects on factor prices, Microeconomics

Assignment Help:

Assuming the Heckscher-Ohlin model is true. Suppose the Cuba and Russia sign a free trade agreement. Furthermore, assume the Cuba and Russia only produce cigars and vodka. Russia has comparative advantage in producing vodka (a K intensive good) and Japan has comparative advantage in producing cigars (a L intensive good). Using supply/demand curves and PPFs to show the following :

(a) Draw both countries PPFs on the same graph and show what happens to quantity of cigars and vodka each country chooses to produce before and after trade. Label your graph fully (i.e. identify each country's ppf, autarky points on ppf, post-trade points on ppf, gains from trade)

(b) Using supply/demand graphs show the effects on factor prices after the Free Trade agreement is signed.

(c) Explain why a country with comparative advantage in the labor intensive good may choose to completely exploit their comparative advantage in that good.


Related Discussions:- Effects on factor prices

Understanding of micro/macro distinction and ppc, explain how microeconomic...

explain how microeconomic and macroeconomic issues may be represented using the production possibility curve

Aggregate supply curve for entire economy, 1. Explain how the aggregate sup...

1. Explain how the aggregate supply curve for the entire economy can be derived under; i. Classical assumption ii. Keynesian assumption 2. Explain how equilibrium can be a

Control of monopsony relating to market power, It is clear that monopsony i...

It is clear that monopsony in the labor market is not steady with allocative efficiency and has the effect of withholding significant amounts the employees' MRP from them, that bec

the bundle containing more bread, Assume that John has the following prefe...

Assume that John has the following preference relation over two goods, bread and bear (x1, x2). He strictly prefers any bundle x over y whenever x haves more bear than y, whatever

Equilibrium, Equilibrium is explained as follows: Equilibrium is the st...

Equilibrium is explained as follows: Equilibrium is the state in which there are no shortages and surpluses; or we can say that the quantity demanded is equal to the quantity s

National income, National income: The national income or product ...

National income: The national income or product or expenditure provides a measure of total value at factor cost of final goods and services, which are available either fo

National income accounting, National income accounting: Final Goods: ...

National income accounting: Final Goods: Final goods are goods and services which are being purchased for final use and not for resale or further processing or manufacturing

Political economy, what is the significance of the Loucas critique in polit...

what is the significance of the Loucas critique in political economy?

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd