Economics Questions

PART 2

Question Five

1. The equilibrium-relative commodity price for the two nations
2. The commodity of comparative advantage for Nation 1 is X while that of nation two is Y
3. The comparative advantage or disadvantage between the two nations would arise when the two nations have an equal slope in relative commodity price line.

Question Six

1. Graph showing specialization in the production and the equilibrium point of consumption and production.
2. The nation 1 will gain by the total amount by which the point E is above point A and to the right. Nation 2 will gain by the excess of the E’ over A’. In this case, Nation 1 will gain more compared to nation 2 because the relative price of the X with the trade is variant from its pre-trade compared to that of nation 2.

Question Seven

1. The Heckscher-Ohlin theory postulates that a nation will export those commodities that are intensive in its relatively cheap and abundant factor and that the international trade will bring about equalization in returns to the homogenous factors across different countries (O’Rourke, 2003).
2. According to Heckscher-Ohlin factor endowments among nations serves as the basic determinant of comparative advantage and trade (O’Rourke, 2003)

Heckscher-Ohlin theory represents the standard model extension because it elucidates the basis of the comparative advantage and……………….