Draw a supply and a demand curve for asparagus, labeling the X-axis “Quantity” and the Y-axis “Price.” On the vertical axis, denote the equilibrium (autarky) price as “P.”
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Suppose this country is an importer of asparagus. With this in mind, draw a straight horizontal line that represents the international price of asparagus. On the vertical axis, label this new price “PI.” Also, on the horizontal axis denote the domestic quantity supplied as “qs1” and the domestic quantity demanded as “qd1.” What distance represents the quantity of this country’s imports of asparagus?
Suppose that transportation costs are introduced to this model and, as a result, the international price paid by this importing country rises to a new price that is higher than PI but lower than PA. Label this new price “PT.”
How does the quantity of imports change? Mark the distance that represents the new quantity of imports on the graph.
Does the introduction of transportation costs affect the validity of the Heckscher-Ohlin theorem? Explain.
Suppose Angola is a labor-abundant country.
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Draw Angola’s supply and demand for labor in autarky, labeling the supply curve Ls and the demand curve Ld1. Why must Ls be a vertical line? Mark the equilibrium wage on your graph as W1.
Draw Angola’s supply and demand for capital in autarky, labeling the supply curve Ks and the demand curve Kd1. Why must Ks be a vertical line? Mark the equilibrium capital price on your graph as r1.
If Angola begins to trade, and trade happens in accordance with the Heckscher-Ohlin-Samuelson model, what will happen to demand for labor in Angola? Mark the new equilibrium wage as w2.
If Angola begins to trade, and trade happens in accordance with the Heckscher-Ohlin-Samuelson model, what will happen to demand for capital in Angola? Mark the new equilibrium wage as r2.
Suppose Angola is a labor-abundant country.
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Draw Angola’s supply and demand for capital in autarky, labeling the supply curve Ks and the demand curve Kd1. Why must Ks be a vertical line? Mark the equilibrium capital price on your graph as r1.
If Angola begins to trade, and trade happens in accordance with the Heckscher-Ohlin-Samuelson model, what will happen to demand for capital in Angola? Mark the new equilibrium wage as r2.
