Scribd
Upload
18 views1 page

Problem Set 2 (Part D)

Uploaded by

100517679
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
Download as pdf or txt
18 views1 page

Problem Set 2 (Part D)

Uploaded by

100517679
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
Download as pdf or txt
Download as pdf or txt
You are on page 1/ 1

International Trade

Universidad Carlos III de Madrid


Problem Set 2 - The Heckscher-Ohlin Model (Part D)

Instructions - I recover the exercise of the previous problem set to do some exercises regarding the
Lerner diagram, Rybczynski Theorem, Stoper-Samuelson and H-O.
Thanks to proximity and industrial cooperation, France and Germany share the same technology for
the production of mobile phones and champagne. These two european countries only differ in their
respective factor endowments, where K F = 70 and LF = 110 while K G = 110 and LG = 70. Both
1/2 1/2
countries have the same utility function, which is represented by U (Cm , Cc ) = Cm Cc where Cm
represents the consumption of mobile phones and Cc represents the consumption of champagne. The
production functions are: Qm = min{2Lm , Km } and Qc = min{Lc , 2Kc } where m represents the
production of mobile phones.

1. Using the same data from our previous problem set draw the Rybczynski Box (if you d o not
have the answers to the previous probem sdt, just calculate sgain the equilirbium, if you should
no take mor than 3 mimutes), also draw the equilibrium allocation of capital and labor between
both industries (do only the German case).
2. Is time to see if the Rybczynski theorem is correct. Imagine that labor in Germany increases
form 70 to 85. Find the new equilibrium allocations (numerically). Is your result consistent with
the Rybczynski theorem? (Draw the new Rybczynski box in the same box you draw previous
one).
3. Return to the previous data (where L is 70 in Germany). Draw the relative supply curve for
Germany and France, then draw the Free Trade (FT) Relative supply curve. Does this relative
supply lies between the ones from Germany and France?. Is important to notice that in the case
of Leontief production functions probably the relative supply curves are not no longer upward
sloping, remember how the isoquant curve looks in the Leontief case, and use this isoquants in
the Lerner diagram (the diagram with the isovalues curves, with K and L in the axis). Now
change w/r, does K/L changes?
4. Draw the Free Trade relative demand curve (assuming identical preferences between France and
Germany), and find the intersection between FT relative demand and FT relative supply. Is this
this result consistent with your answer to the previous problerm set?
5. Does the Stoper-Samuelson Theoren holds? (Do not make a numerical analysis, a graphical
analysis is sufficient)

You might also like