Assume there are two countries, Country C (labor abundant) and Country D (land a

Question

Assume there are two countries, Country C (labor abundant) and Country D (land abundant); and two products: cloth (labor intensive) and wheat (land intensive). These two countries move from a state of autarky (no trade) to free trade. What will be: a. Short term effect of trade on the price of cloth in Country C? Explain why. b. Short term effect of trade on the price of wheat in Country D? Explain why. c. Long term effect of trade on the price of land (rent) in Country C? Explain why. d. Long term effect of trade on the price of labor (wages) in Country C? Explain why. e. Long term effect of trade on the price of land (rent) in Country D? Explain why. f. Long term effect of trade on the price of labor (wages) in Country D? Explain why. g. Create 2 tables summarizing the short term and long term effects of free trade on landowners and laborers in each country Assume there are two countries, Country C (labor abundant) and Country D (land abundant); and two products: cloth (labor intensive) and wheat (land intensive). These two countries move from a state of autarky (no trade) to free trade. What will be: a. Short term effect of trade on the price of cloth in Country C? Explain why. b. Short term effect of trade on the price of wheat in Country D? Explain why. c. Long term effect of trade on the price of land (rent) in Country C? Explain why. d. Long term effect of trade on the price of labor (wages) in Country C? Explain why. e. Long term effect of trade on the price of land (rent) in Country D? Explain why. f. Long term effect of trade on the price of labor (wages) in Country D? Explain why. g. Create 2 tables summarizing the short term and long term effects of free trade on landowners and laborers in each country Assume there are two countries, Country C (labor abundant) and Country D (land abundant); and two products: cloth (labor intensive) and wheat (land intensive). These two countries move from a state of autarky (no trade) to free trade. What will be: a. Short term effect of trade on the price of cloth in Country C? Explain why. b. Short term effect of trade on the price of wheat in Country D? Explain why. c. Long term effect of trade on the price of land (rent) in Country C? Explain why. d. Long term effect of trade on the price of labor (wages) in Country C? Explain why. e. Long term effect of trade on the price of land (rent) in Country D? Explain why. f. Long term effect of trade on the price of labor (wages) in Country D? Explain why. g. Create 2 tables summarizing the short term and long term effects of free trade on landowners and laborers in each country

Explanation / Answer

a. Country C will export labor intensive good. Thus, it will only produce cloth after opening to trade. It will export the good to country D. In the home country it might lead to shortage and thus lead to increase in price of cloth.

b. Similarly, Country D will export land intensive good, wheat and in the short run it might lead to increase in price of wheat in Country D.

c. In Country C, the demand for land will decline as after trade it only manufactures cloth which is labor intensive good. Thus, price of land or rent will decline in Country C.

d. On the other hand, the demand for labor will increase in Country C and thus wages will increase in Country C as it only produces cloth which is labor intensive good.

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