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Suppose the United States Exports Capital-Intensive Goods Like Construction Equipment

Question 58

Essay

Suppose the United States exports capital-intensive goods like construction equipment to the rest of the world and imports clothing, a labor-intensive good. Both the goods use capital and labor as their only inputs. Recently the capital endowment of the U.S. has increased substantially, but the size of the labor force has remained unchanged.
A)What is the effect of the change in endowment on the shape and position of the production-possibility curve of the U.S.? Illustrate your answer with the help of a suitable diagram.
B)What is the effect of such changes in factor endowment on the actual production quantities of the two goods in the United States, assuming the product price ratio remains unchanged in the international market? Explain and illustrate graphically.
C)What is the effect of such changes in factor endowment on the United States' willingness to trade?

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A.The increase in the U.S. endowment of ...

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