Question

Please help me to solve this problem, thank you so much.

Part A. These questions help you review the Heckscher-Ohlins model. Determine whether each statement is T/F, and then briefly explain why. 32 points.

1. Consider the following Heckscher-Ohlin model. France and Italy produce wine and bread. Bread is capital intensive, while wine is labor intensive. France is capital abundant, while Italy is labor abundant.(22 points total, 2 points each)

(1). Italy has a larger labor force than France.

(2). Italy has the comparative advantage for wine.

For questions (3)-(11), consider the movement from closed-economy to free trade.

(3). The marginal product of labor for the wine industry increases in France.

(4). The labor-capital ratios of both industries increase in France.

(5). The capital owners in France support free trade.

(6) French workers’ real wage for bread increases.

(7). The real rental rate of capital for wine increases in Italy.

(8). The relative demand for labor increases in France.

For questions (9) – (11) below, assume that going from no trade to free trade, the price of wine rises by 10% for Italy, while the price of bread remains unchanged.

(9) The wage of all Italian workers increases by more than 10%.

(10) The Italian workers’ real wage for bread increases by more than 10%.

(11). In Italy, the rental rate decreases.

Answer 1

Can answer only 4 parts according to HOMEWORKLIB POLICY

1 false for factor abundance k/l ratio or l/k ratio matters and not absolute amounts of K and l

2 Yes because it is labour abundant and wage is lower there

3 false because of specialisation in bread which is capital intensive

4 True because as predicted by factor prices equalization theorem wage will fall in france