Question

France, a labor abundant country, is producing two goods with the following input requirements per product: Cars using 20 units of capital and 4 units of labor and boats using 10 units of capital and 5 units of labor. Germany on the other hand is a capital abundant country and uses the same production technology for cars and boats. These two countries decide to sign a free trade agreement. Using the H-O model and relevant theories, please explain how letting France trade with Germany will impact the incomes of labor and capital owners in France? What happens to the ratio of labor to capital used in both sectors in France? Please use a graph with your explanation.

Answer 1

Answer:

Supongamos que dos países, Francia y Alemania, utilizan sólo capital y mano de obra para la producción. Francia tiene 2050 unidades de capital y 916 unidades de trabajo y Alemania tiene 816 unidades de capital y 270 unidades de trabajo. Ambos países producen dos bienes, automóviles y vino. En Alemania hay 366 unidades de capital y 135 unidades de mano