Assume a two-country US and Japan, two-good, two-factor of production world wher

Question

Assume a two-country US and Japan, two-good, two-factor of production world where the following relationships hold: K/L)Us(K/LJapan (K/L)automobiles (K/L)shoes Where (K/L)us is the capital-labor ratio in the United States; (K/L)japan is the capital-labor ratio in the Japan; (K/Dautomobiles is the capital-labor ratio in the production of automobiles, and (K/L)shoes is the capital-labor ratio in the production of shoes. K-capital and L Labor. Assume further that technology and tastes are the same in the United States and the Japan. If Japan was capital-abundant, the opening up of free trade would cause the production of automobiles to and the production of shoes to . rise; rise rise;fall all; fall fall;rise

Explanation / Answer

Ans

1 rise, fall because Japan is capital abundant and automobiles are capital intensive

2 less greater. Alpha is labour abundant and food is labour intensive. So alphas relative cost will be lower....

3 greater

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