2. What is meant by the trade triangle? Why must the trade triangles of the part

Question

2. What is meant by the trade triangle? Why must the trade triangles of the partner and the home country be congruent in a two-country analysis?

3. Within what range must the international terms of trade lie?

4. What is the basis for trade according to Heckscher-Ohlin? What products should a country export? Why?

5. Explain why the K/L ratio in each industry will rise with the initiation of trade in a labor-abundant country and will fall in a capital-abundant country.

6. Explain the difference between factor- intensity reversal and demand reversal. Do they have similar effects on the validity of the H-O theorem?

please help the problem 2 ~ 6. thank you.

Explanation / Answer

Answer

2)

Trade Triangle - As a name suggests, It is a trade between three different regions. It mainly occurs when Exports are not balanced by the imports i.e. when there is trade imbalance.

This is because imports of one country is the export of another country and export of other country is the import of first country. And also Trade prices are same for both countries.

3)

Terms of Trade lies between opprtunity cost of goods under consideration between two countries.

4)

According to H-O theory Trade between 2 country having similar preferences same goods on the basis of K/L ratio. Country whose Capital Labour Ratio is more should export Capital intensive good and country whose Capital Labour ratio is less should export Labour intensive good.

5)

When Trade initiates, a labour abundant country exports Labour intensive good and according to price equivilization theory K/L increases and similarly for a capital abundant country K/L decreases

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