Fall 2018 Heckscher-Ohlin model of international trade. Both countries have access to the same technology to produce 2 goods: corm (relatively land intensive) and textiles (relatively labor intensive). countries have endowments of labor and land, but Mexico is relatively labor abundant and the US is relatively land abundant. Assume that both countries have similar preferences for corn and textiles 10. Assume the world includes only the US and Mexico and that both behave according to the Both The PPF below reflects assumptions about Mexico's endowment of labor and land. Assume there exists some international terms of trade (which reflects the appropriate pattern of trade for Mexico); add the terms of trade line to diagram and show a plausible points of production and consumption. a. Mexico textiles b. Suppose a baby boom in Mexico 20 years ago generated a growth in the supply of labor (no change in land) in Mexico today. Show the impact of this growth in labor with a new PPF on the diagram above. Assuming prices are held constant, what does the Rybezynski Theorem suggest will happen to trade? That is analyze and explain this impact on the Mexican economy using Mexico's c. production possibility frontier
(a) Does either country have an absolute advantage in the production of wheat or beef? Explain.
(b) What is the opportunity cost of wheat in each country?
(c) What is the opportunity cost of beef in each country?
(d) Analyze comparative advantage and opportunities for trade between the U.S. and Argentina.
2. Suppose that China is labor-abundant country and U.S. is capital-abundant country. iPad is capital-intensive and cloth is labor-intensive. Show that U.S. exports iPad after opening up to trade using Heckscher-Ohlin model.
3. Explain the immiserizing growth using standard trade model.
4. Consider the following Heckscher-Ohlin model: there are two countries, America and China, two goods, high-tech manufactures and low-tech manufactures, and two factors of production, skilled labor and unskilled labor. America is skilled-labor abundant and China is unskilled-labor abundant. High-tech manufactures are skilled-labor intensive and low-tech manufactures are unskilled-labor intensive. What happens to the price of high-tech manufactures relative to the price of low-tech manufactures in America following trade?