Question

Home produces two goods: computers and wheat. Capital is specific to computers, land is specific to wheat, and labor is mobile between the two industries. Home has 100 workers and 100 units of capital but only 10 units of land. Foreign also produces computers and wheat. Capital is specific to computers; land is specific to wheat; and labor is mobile between the two sectors. Foreign also has 100 workers, but instead has 100 units of land and only 10 units of capital. It has the same production functions as Home. If trade is opened, the relative price of wheat will _____ in Home and _____ in Foreign.

Answer 1

Answer:

The appropriate answer is "capital intensive, land intensive".

Explanation:

• Throughout Home than anything in Abroad, the whole no-trade income of farmers would be significantly greater, even though Home has fewer land assets than International. Throughout Home, then it does in International, the whole no-trade rate of electronics would be smaller, as Home does have more capital resources than International.
• If the market is established, the comparative commodity price throughout the home will be decreased through trade as well as rise throughout foreign trade. If an exchange is expanded, the capital demand would rise at home as well as the rent overland throughout foreign countries will rise.

This will take effect even though the international availability of land will increase but instead international demand for resources will keep increasing.