Part III. Offer Curve Suppose that country I increases its willingness to trade
ID: 1141901 • Letter: P
Question
Part III. Offer Curve Suppose that country I increases its willingness to trade at the same time that trading partner country II decreases its willingness to trade. What can be said about the resulting impact on the terms of trade and on the volume of trade? Assume import is price elastic. (Note: You will not be able to say anything concrete about one of these two impacts. Why not?) Part IV. Heckscher-Ohlin Model Consider two countries, Vietnam and China, producing two goods, textile and televisions. Suppose that textile is relatively labor-intensive. Vietnam has 20 units of capital and 16 units of labor and China has 300 units of capital and 150 units of labor . Which country is relatively capital-abundant? Explairn 2. Which country will export textile? Explain 3. In Vietnam the production of which good decreases under trade? In China? 4. In China, is the relative price of televisions higher under free trade or no trade? Explain. 5. W hich group benefits from trade in China? In Vietnam?Explanation / Answer
Answer:
Part III:
If country I increase its willingness to trade at the same time that trading partner country II decreases its willingness to trade it will create adverse impact on the terms of trade of both the countries and it can also reduce their volume of trade. If country II has decreased its willingness to trade than it will increase the prices of its exportable commodities so that they will become costly for the importing country as the prices of commodity will increase it will reduce the demand for the commodity because import is price elastic (any change in price will affect the imports) which will reduce their exports and to decrease their imports the country will impose heavy tariff duties on imports which will decrease the demand for imports in the domestic country. While country I will adopt low pricing policy to increase its exports but due to heavy tariff duties by the partner country the exports will not increase much. So the effect of price increase by the country II to reduce its trade will more effective and it will reduce the volume of trade between countries and will make their terms of trade unfavorable for both the countries.
Part IV:
Hecksher- Ohlin model of international trade says that the trade between two countries will take place according to their factor endowments means that a country will export the commodity which it can produce with its abundant factors and will import commodity whose factors are scarce in the country.
Vietnam has capital (Kv) = 20 units
Vietnam has labour (Lv) = 16 units
China has capital (Kc) = 300 units
China has labour (Lc) = 150 units
Answer: 1. To calculate the factor intensity between these two countries we will take their labour –capital ratio. The higher the ratio the more the capital abundant the country will
Factor intensiveness = Kv/Lc = Kc/Lc
20/16 = 300/150
1.25 = 2
1.25 < 2
So the ratio is high for china that means China is relatively capital –abundant country
Answer: 2: Vietnam will export textile because textile is relatively labour –intensive good and Vietnam being a labour abundant country will produce textile and export it.
Answer: 3: in Vietnam the production of television will decrease as Vietnam will produce more textiles while in china the production of textile will decrease as it will produce more televisions.
Answer: 4: in china the relative price of television will higher under free trade as after entering into trade the demand for television will increase.
Answer: 5: the customer of textiles will be benefitted from trade as china will import textile at low prices from Vietnam and the customers will get it at lower prices than the domestic prices while the customer of television will be benefitted in Vietnam as Vietnam will import television from china at lower prices than it domestic prices.
*part IV i have already answered, so just copy - pasted here.
thank you