Chapter 5, Resources and Trade: The Heckscher-Ohlin Model Video Solutions, International Economics: Theory and Policy

Problem 1

Go back to the numerical example with no factor substitution that leads to the production possibility frontier in Figure 5-1.
a. What is the range for the relative price of cloth such that the economy produces both cloth and food? Which good is produced if the relative price is outside of this range?
For parts (b) through (f), assume the price range is such that both goods are produced.
b. Write down the unit cost of producing one yard of cloth and one calorie of food as a function of the price of one machine-hour, $r$, and one work-hour, $w$. In a competitive market, those costs will be equal to the prices of cloth and food. Solve for the factor prices $r$ and $w$.
c. What happens to those factor prices when the price of cloth rises? Who gains and who loses from this change in the price of cloth? Why? Do those changes conform to the changes described for the case with factor substitution?
d. Now assume the economy's supply of machine-hours increases from 3,000 to 4,000 . Derive the new production possibility frontier.
e. How much cloth and food will the economy produce after this increase in its capital supply?
f. Describe how the allocation of machine-hours and work-hours between the cloth and food sectors changes. Do those changes conform with the changes described for the case with factor substitution?

Lindsay Bur

Numerade Educator

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Problem 2

In the United States, where Internet services are cheap, the ratio of capital to labor used is higher than that of capital used in accounting services. But in other countries, where Internet services are expensive and labor is cheap, it is common to use less capital and more labor than in the United States. Can we still say that Internet services are capital intensive compared to accounting services? Why or why not?

Rashmi Sinha

Numerade Educator

02:25

Problem 3

"The world's poorest countries cannot find anything to export. There is no resource that is abundant - certainly not capital or land, and in small poor nations not even labor is abundant." Discuss.

Kaylee Mcclellan

Numerade Educator

00:35

Problem 4

Most U.S. immigrants are represented by Mexican blue-collar workers that are more likely to work in risky jobs than U.S.-born workers with positive effect on productivity. Limiting immigration is a shortsighted or a rational policy in view of the interests of union members? How does the answer depend on the model of trade?

Jennifer Stoner

Numerade Educator

01:14

Problem 5

Offshore accounting services, especially to India, are becoming an increasingly attractive option for many U.S. companies. This shift has led to huge startup and communication costs, and the employment situation is further affected by general downsizing of corporations, as well as an increase in productivity. Are the exports of white-collar jobs to India necessarily a loss for the United States?

Kaylee Mcclellan

Numerade Educator

01:01

Problem 6

Explain why the Leontief paradox and the more recent Bowen, Leamer, and Sveikauskas results reported in the text contradict the factor-proportions theory.

Jennifer Stoner

Numerade Educator

07:49

Problem 7

Will free trade and perfect competition lead to an equalization of wage rate internationally? Explain. Why would the wage rate greatly vary between developed and developing countries, in the same sector in a real world situation, even after the adoption of free trade.

Crystal Wang

Numerade Educator