Consider the following data on the factor endowments of two countries, and answe

Question

Consider the following data on the factor endowments of two countries, and answer the following questions: Which country is relatively capital abundant? Which country is relatively labor abundant? Supposing that good S is capital intensive relative to good T, which country will have comparative advantage in the production of S? Explain. Answer the questions in exercise 3 using the following data on factor endowments of countries C and D: Australia is land abundant, India is labor abundant. Wheat is land intensive relative to textiles. Graphically demonstrate the pretrade and posttrade equilibria between these two countries. Find and label the trade triangles for each. Which factors gain and which factors lose when trade arises between the two countries? Explain carefully.

Explanation / Answer

a) clearly A is labour abundant since 45/60=75% (3/4th) of its resources are labours compared to B's 2/3rd. b) B is relatively capital abundatnt since 1/3 of it's resources are capital compared to A's 1/4th Capital resources. c) Since S is capital intensive, B should make it since it is a relatively capital abundant country as already explained. 9) Labour component for C is 12/60 = 20%. For D it is 1/3rd= 33.33%. hence D is labour abundant. Also C is capital abundant.

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