International Economics

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Q1. Using the following data on factor endowments of countries X and Y, determine the direction of the international trade under the HO theory. (10 points)

Factor Endowment

Countries

X

Y

Labor Force (in million workers)

28

10

Capital Stock (in thousands of machines)

56

30

Q2. Answer the question(s) below based on the information in the following table under the classical model, where the numbers represent the number of labor hours it will take to produce a unit of the given good.

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Spain

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France

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Grapes

3

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9

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Textiles

1

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2

(1) What country has comparative advantage in Grapes and in Textiles? How? (5 points)

(2) Draw diagrams to illustrate the pre- and post- trade equilibria for each of the two countries including the production points, the consumption points, the international price, and the volumes of exports and imports for each. (7 points)

Q3. France is capital abundant and Italy is labor abundant. Shoes are labor intensive and wheat is capital intensive.

(1) Identify which country has comparative advantage in which good and Why? (5 points)

(2) Draw diagrams to illustrate the pre- and post- trade equilibria for each of the two countries including the production points, the consumption points, the international price, and the volumes of exports and imports for each. (7 points)

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