Question

(second part)There are two countries, Home (H). and Foreign (F), and two goods, Automobiles (A) and Baseballs (B). Assume that H is labor-abundant and that A is capital-intensive.

c. With A on the horizontal axis draw the PPF and indifference curve for the H after trade. Indicate the equilibrium production point, the equilibrium consumption point, imports, exports, the trade triangle, and the relative price of A that supports trade.

d. In words, describe the changes that occur in the economy of H with trade. Relate your explanation to features of your graph above. Compare to what you would expect with the Specific Factors model.

e. Describe who the winners and losers are after trade (and the intuition as to why they are winners or losers) in H. Draw an RD/RS graph to help with your explanation. Prove that trade is good in this model.

Answer 1

d. In words, describe the changes that occur in the economy of H with trade. Relate your explanation to features of your graph above. Compare to what you would expect with the Specific Factors model.d. In words, describe the changes that occur in the economy of H with trade. Relate your explanation to features of your graph above. Compare to what you would expect with the Specific Factors model.d. In words, describe the changes that occur in the economy of H with trade. Relate your explanation to features of your graph above. Compare to what you would expect with the Specific Factors model.