Knowee
Questions
Features
Study Tools

2. Suppose the amount of labor in country F increases.i. Using a diagram show how the world relative supply for good B and the world relative price ofgood B changes.ii. How does it affect the terms of trade of country F?iii. How does it affect the terms of trade of country H?iv. How does it affect the welfare of country F?v. How does it affect the welfare of country H

Question

  1. Suppose the amount of labor in country F increases.i. Using a diagram show how the world relative supply for good B and the world relative price ofgood B changes.ii. How does it affect the terms of trade of country F?iii. How does it affect the terms of trade of country H?iv. How does it affect the welfare of country F?v. How does it affect the welfare of country H
🧐 Not the exact question you are looking for?Go ask a question

Solution

i. World Relative Supply and Price Changes:

  1. Draw a graph with the relative price of Good B on the y-axis and the relative quantity of Good B on the x-axis.
  2. Draw an initial world relative supply curve. This curve is upward sloping, indicating that as the price of Good B increases, the quantity supplied also increases.
  3. When the amount of labor in country F increases, the production of Good B (which is labor-intensive) increases. This shifts the world relative supply curve to the right.
  4. As the supply increases, the relative price of Good B decreases. This can be shown by a movement down along the demand curve.

ii. Effect on Terms of Trade for Country F: The terms of trade is the rate at which one good can be exchanged for another. With an increase in labor, country F can produce more of Good B. This increases the supply of Good B in the world market, which lowers its price. Therefore, the terms of trade for country F (the amount of Good A it gets for each unit of Good B) worsens.

iii. Effect on Terms of Trade for Country H: For country H, which is a net importer of Good B, the decrease in the price of Good B improves its terms of trade (it can get more of Good B for each unit of Good A it gives up).

iv. Effect on Welfare of Country F: The welfare effect on country F is ambiguous. On one hand, it can produce and consume more of Good B due to the increase in labor. On the other hand, the worsening terms of trade mean that it gets less of Good A for each unit of Good B it exports. The net effect depends on the relative importance of these two effects.

v. Effect on Welfare of Country H: For country H, the welfare effect is likely to be positive. It can now import Good B at a lower price, which allows it to consume more of both goods. This increases the welfare of country H.

This problem has been solved

Similar Questions

Assume two countries: H and F. Each country produces two goods, A and B. Good A is relatively capitalintensive and country F is relatively labor abundant. Consider H and F to be large economies.1. Suppose the amount of labor in country F increases. Using a diagram show how the PPF and theproduction point of country F change.2. Suppose the amount of labor in country F increases.i. Using a diagram show how the world relative supply for good B and the world relative price ofgood B changes.ii. How does it affect the terms of trade of country F?iii. How does it affect the terms of trade of country H?iv. How does it affect the welfare of country F?v. How does it affect the welfare of country H?

4. Now consider country F in this model to be a small country. Suppose the amount of labor in country Fincreases.i. How does it affect the terms of trade of country F?ii. How does it affect the terms of trade of country H?iii. How does it affect the welfare of country F?iv. How does it affect the welfare of country H?

Suppose Vietnam produces only clothing and rice. Labour input is needed for both goods. The clothing industry requires capital, while the rice industry requires land for production. 1) Draw the appropriate diagram for this scenario. Carefully label everything on your diagram. And explain in a sentence or two why you chose this model or diagram. (3 points) 2) Vietnam experiences an increase in the relative price of clothing. What happens to the allocation of the labour force in Vietnam? And what happens to an average worker’s nominal and real wage? Describe in words. Modify and label your diagram from part 1) accordingly. (5 points) 3) In Vietnam, who benefit and who lose from trade (an increase in relative price of computers)? Answer the question by concluding on whether each of the three groups -- capital owners, land owners, and workers, gain or lose from trade. Support your answer with some brief explanations. (4 points)

If a good is imported into (large) country H from country F, then the imposition of a tariff incountry HA) raises the price of the good in both countries (the "Law of One Price").B) raises the price in country H and cannot affect its price in country F.C) lowers the price of the good in both countries.D) lowers the price of the good in H and could raise it in F.E) raises the price of the good in H and lowers it in F.

International trade contributes and increases the world _________Question 16Answera.Inflationb.Trade Barriersc.. Populationd.Econom

1/3

Upgrade your grade with Knowee

Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.