3. assume that the u.s. has 400 units of K (capital) and 300 units of L (labor)

Question

3. assume that the u.s. has 400 units of K (capital) and 300 units of L (labor) while Mexico has 75 whits of K and 125 units of L. In both countries it takes 3K/L to produce each unit of X but only 2K/L to produce each unit of Y. Which nation has the comparative advantage in exporting X? Which nation has the comparative advantage in exporting Y?

4. What happened to the Leontief paradox when human capital embodied in U.S. exports was accounted for as a separate factor of production? Does this help to explain why college graduates might favor international trade more than those with significantly less education and training? Is your answer to the second question consistent with the predictions of the Stopler-Samuelson theorem?

5. Refer to question #3. Mr. Smith lives in the U.S. and argues that foreign trade does not work. Is it more likely that Mr. Smith is employed in industry X or industry Y?

Explanation / Answer

In this case, US 400K=300L K=3/4L Mexico 75K=125L K=5/3L Therefore, Mexico should produce and export x and US should with Y 5. In this case, Mr. Smith is more likely to work in the indusrty of Y since he lives in the US and produces their comparative advantage. Hope this helps

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