Economics International Trade
posted by Lilian on .
Heckscher- Ohlin Model
1. Suppose that Home produces computers (C) and Food (F) using skilled labour (S) and unskilled labour (L). The unit factor requirements for each industry are:
aSC = 1 aSF = 1
aLC = 2 aLF = 4
(a)What good is skilled labour intensive?
(b)Suppose that the world price of computers PC is $16 and the world price of food PF is $12. Assuming that Home produces both goods what are the free trade values of the nominal wage of skilled workers WS and the nominal wage of unskilled workers WL?
(c)Suppose the world price of computers increases to $26. What are the new values of WS and WL?
(d)Compute the real wages of skilled workers and unskilled workers before and after the increase in the price of computers. Which factor gains and which loses?
Do a little research and then take a shot. What do you think?
Hint: these questions are all about opportunity cost; examine the opportunity cost of producing C and F in by both skilled and unskilled labor.