Question

suppose that the world is composed of just two countries (A and B). Consider that workers (labor) in A are more productive than workers in B in producing the two goods (W and C) that can be produced in both countries. Also, assume that the working conditions (labor laws protecting workers' rights) in country B are not as good as in country A. Nonetheless, markets in both countries are assumed to be perfectly competitive. Under autarky, in which country is the income level (per capita income) expected to be lower (i.e., which country's workers are expected to be poorer). Why?

Answer 1

Autarky, an economy with self-sufficiency and limited trade. A country is said to be in a complete state of autarky if it has a closed economy, which means that it does not engage in international trade with any other country.

Economists equate autarky with low income and they equate social capital in poor rural areas with self insurance.

Country A has income level (per capita income) expected to be lower (i.e., country's A workers are expected to be poorer).

Explanation :

It is particularly damaging to a large low income country because increased self-sufficiency requires the rapid expansion of heavy and chemical industry which is capital & skill intensive. The low-income country is deflected from its comparative advantage in labour-intensive.