Suppose when Russia opens to trade, it imports automobiles, a capital-intensive
ID: 1094731 • Letter: S
Question
Suppose when Russia opens to trade, it imports automobiles, a capital-intensive good.
(a)According to the Heckscher-Ohlin Theorem, is Russia capital abundant or labor abundant? Briefly explain.
(b)What is the impact of opening trade on the real wage in Russia?
(c)What is the impact of opening trade on the real rental on capital?
Which group (capital owner or labor) would support policies to limit free trade? Briefly explain
Answer questions 1-3 based on the following PPF.
(a) 2.
(b)
Suppose when Russia opens to trade, it imports automobiles, a capital-intensive good. (a)According to the Heckscher-Ohlin Theorem, is Russia capital abundant or labor abundant? Briefly explain. (b)What is the impact of opening trade on the real wage in Russia? (c)What is the impact of opening trade on the real rental on capital? Which group (capital owner or labor) would support policies to limit free trade? Briefly explain Answer questions 1-3 based on the following PPF. 1. The relative price of S (in terms of T), PS/ PT, is 2. The relative price of T (in terms of S), PT/PS, is 3. If the relative price of T were to increase, then the price line would (a) shift out in a parallel fashion. (b) shift in a parallel fashion. (c) become steeper. (d) become flatter. 4. In autarky, when a country maximizes its utility, its consumption point is (a) below the production possibility frontier. (b) on the production possibility frontier. (c) above the production possibility frontier. (d) cannot tell without more information.Explanation / Answer
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