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1. There are two countries, NZ and AUS, which use the same technology for production of food and cloth. The labour (L) and capital (K) endowments areL=100andk=60forNZ,andL-=50andK--20forAUS. Theinputs used in production in NZ and in AUS are given in the following table: NZ AUS Labour Capital Labour Capital Food aur=4 ax =3 a-u=6 8-2 Cloth alc=6 axc=5 8-LC =8 a-xc=4 Which good is capital-intensive in NZ? In AUS? Which good is labour-intensive in NZ? In AUS? Which country is labour-abundant? Which is capital-abundant? Draw the PPF curves for the two countries. Which country has a higher relative supply of cloth if the countries face the same relative price of cloth? What is the level of free trade relative price of cloth compared to the two autarky relative prices of cloth? Which country exports what? Relate the answer to the Heckscher- Ohlin Theorem. Illustrate the imports and exports. Show using indifference curves that both countries gain from trade.

1. There are two countries, NZ and AUS, which use the same technology for production of food and cloth. The labour (L) and capital (K) endowments areL=100andk=60forNZ,andL-=50andK--20forAUS. Theinputs used in production in NZ and in AUS are given in the following table: NZ AUS Labour Capital Labour Capital Food aur=4 ax =3 a-u=6 8-2 Cloth alc=6 axc=5 8-LC =8 a-xc=4 Which good is capital-intensive in NZ? In AUS? Which good is labour-intensive in NZ? In AUS? Which country is labour-abundant? Which is capital-abundant? Draw the PPF curves for the two countries. Which country has a higher relative supply of cloth if the countries face the same relative price of cloth? What is the level of free trade relative price of cloth compared to the two autarky relative prices of cloth? Which country exports what? Relate the answer to the Heckscher- Ohlin Theorem. Illustrate the imports and exports. Show using indifference curves that both countries gain from trade.

Economics: Private and Public Choice (MindTap Course List)
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter3: Demand, Supply, And The Market Process
Section: Chapter Questions
Problem 10CQ
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1. There are two countries, NZ and AUS, which use the same technology for production of food and cloth. The labour (L) and capital (K) endowments areL=100andk=60forNZ,and L=50andk-20forAUS. Theinputs used in production in NZ and in AUS are given in the following table: NZ AUS Labour Capital Labour Capital Food aLF =4 akF=3a-LF =6 8-KF=2 Cloth alc =6 axc=5 a-Lc =8 a-xc=4 Which good is capital-intensive in NZ? In AUS? Which good is labour-intensive in NZ? In AUS? Which country is labour-abundant? Which is capital-abundant? Draw the PPF curves for the two countries. Which country has a higher relative supply of cloth if the countries face the same relative price of cloth? What is the level of free trade relative price of cloth compared to the two autarky relative prices of cloth? Which country exports what? Relate the answer to the Heckscher- Ohlin Theorem. Illustrate the imports and exports. Show using indifference curves that both countries gain from trade.
Transcribed Image Text:1. There are two countries, NZ and AUS, which use the same technology for production of food and cloth. The labour (L) and capital (K) endowments areL=100andk=60forNZ,and L=50andk-20forAUS. Theinputs used in production in NZ and in AUS are given in the following table: NZ AUS Labour Capital Labour Capital Food aLF =4 akF=3a-LF =6 8-KF=2 Cloth alc =6 axc=5 a-Lc =8 a-xc=4 Which good is capital-intensive in NZ? In AUS? Which good is labour-intensive in NZ? In AUS? Which country is labour-abundant? Which is capital-abundant? Draw the PPF curves for the two countries. Which country has a higher relative supply of cloth if the countries face the same relative price of cloth? What is the level of free trade relative price of cloth compared to the two autarky relative prices of cloth? Which country exports what? Relate the answer to the Heckscher- Ohlin Theorem. Illustrate the imports and exports. Show using indifference curves that both countries gain from trade.
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