4.Suppose Ireland and Canada produce two goods, Y and X. Assume that good Y is l

Question

4.Suppose Ireland and Canada produce two goods, Y and X. Assume that good Y is labor intensive and good X is capital intensive.

a. Given the above PPFs, which country is relatively labor-abundant? Capital-abundant? Explain.

b. Suppose the countries have identical preferences. Show the no-trade equilibrium and the free-trade equilibrium. Be sure to label the production and consumption points for both economies.

c. Which good will Ireland export? What about Canada? Explain.

d. Compare the relative factor prices in the two countries before anafter trade.

e. Comment on the overall welfare in both countries.

Explanation / Answer

a.As we see that X is capital intensive and Y is labour intensive.So Canada is producing more X and Ireland is producing more Y good.So canada is capital intensive whether,Ireland is labour intensive.

b.I am sorry, I can't attach any diagram as my system doesnot support.

C.Ireland will export Y good as it has more production of that good than Canada.

Canada will export X as it has more production of that good than Ireland.

c.Relative factor prices refer at which quantity both goods are exchanged into each other.

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