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1.) Suppose there are two factors of production in Guatemala, land and unskilled workers. If you...

1.) Suppose there are two factors of production in Guatemala, land and unskilled workers. If you read that the union representing unskilled laborers is protesting the proposed free trade agreement with Mexico, what can you conclude about relative factor abundance in Guatemala? Explain.

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Answer #1

Q1) Land is more abundant in Guatemala as opposed to labor. Now, since there are only two inputs, free trade with Mexico means that Mexico has a comparative advantage in one input and Guatemala in another. Since, the labor union is protesting free trade, it is indicative that all the labor-intensive manufacturing has gone to Mexico. This means that Mexico is more labor abundant and can thus employ cheaper labor to produce labor-intensive goods. Thus, in Guatemala land is more abundant and under free trade land will be utilized in Guatemela as opposed tot he labor.

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