Show work. Thanks Suppose two countries, Algeria and Congo, each produce two goo

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Show work. Thanks

Suppose two countries, Algeria and Congo, each produce two goods, gadgets (G) and widgets (W), using capital (K) and labor (L). In both countries it takes: 3 units of labor and 1 unit of capital to make one gadget: and it takes 4 units of labor and 2 units of capital to make one widget. Algeria has 100 units of labor and 80 units of capital, while Congo has 60 units of labor and 60 units of capital. In summary, we have the following information: Technology: a_LG = 3 a_KG = 1 a_LW = 4 a_KW = 2 Factor Endowments: Algeria: L = 100; K = 80 Congo: L* = 60; K* = 60 Given the information above, answer the following questions: Show which country is capital abundant and which country is labor abundant. Show which good is capital intensive and which good is labor intensive. State the Heckscher-Ohlin theorem. Apply then theorem to explain which product will Algeria export and which product will Congo export.

Explanation / Answer

1)'K/L= 80/100=0.8

K*/L*=60/60=1

from the above we see that Congo has more capital per worker than Algeria. So Congo is more capital abundant and Algeria is more labour abundant.

2) Capital intensive = ratio of capital required / ratio of labour required

For gadget = K/L = 1/3=0.33

For Widget K/L= 2/4=0.5

Widget is more capital intensive and gadget is more labour intensive

3) The Heckscher -Ohlin Theorem states that a country will export goods that use its abundant factors intensively, and import goods that use its scarce factors intensively. In the two-factor case, it states: "A capital-abundant country will export the capital-intensive good, while the labor-abundant country will export the labor-intensive good."

An important assumption of the Heckscher–Ohlin model is that the two countries are identical, except for the difference in resource endowments

As per the Hecksher Ohin theorem Algeria,the labour abundant country will export the labour intensive good gadget .

Congo, the capital abundant country will export the Capital intensive good widget

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