goodFPFP°F=ww°aLFa°LF1(1 +z)=3421223=126>1Foreign will continue to produce and export goodF:(d)Suppose that instead of2countries and3goods there are3countries and only2goods, wheremarginal productivitiesare described in the following table:marginal productivity of labourCountryABCRope523Shoes6122Determine the range of the relative price of Rope which will lead to the special-ization in Rope by2of the3countries and specialization in Shoes by one country.Explain which country will have the highest wage?The opportunity cost of Rope in each country is:CountryBCAopp cost of rope142365Relative price of rope23<PRPS<65will lead toBandCproducing Rope andAproducing Shoes.CountryAhas the highest productivity in the production of both goods soAwillhave the highest wage.2. In a Heckscher-Ohlin world with two consumption goods, Solar panels(S)and wheat(W)can be produced using two factors of production (inputs), Labour(L)and Land(T). The prices of labour and land arewandrrespectively. The production of Solarpanels is said to be Labour intensive and the production of Wheat is Land intensive,that isTLW>TLSThe Home country has a °xed supply of both Labour,°Land Land,°T. The PPF forthe Home country is curved and is concave (bowed out) relative to the origin(a)Use the graph of the PPF below to explain what will happen to the production ofWheat and Solar Panels if there is an increase in the relative price of Solar Panels5
(increase inPSPW) in the Home country. Is the Home country likely to devote allits resources to the production of a single good?P1P0SWQ0Q1Increase in the relative price of Solar panels fromP0=PSPW0toP1=PSPW0will leadto a change in production fromQ0toQ1, there is an increase in the productionofSand a decrease in the production ofW:6
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