Assume a two-country two-good two-input model where the following relationships hold: (K/L)_U.S. (K/L)_ROW (K/L)_automobiles (K/L)_shoes Where (K/L)_U.S. is the capital-labor ratio in the United States, (K/L)_ROW is the capital-labor ratio in the Rest of the World, (K/L)_automobiles indicates the capital-labor ratio in the production of automobiles, and (K/L)_shoes indicates the capital-labor ratio in the production of shoes. Assume further that technology and tastes are the same in the United States and the Rest of the World. The relationships shown here indicate that, with no trade, in the United States: A)the relative labor endowment is higher than in the Rest of the World. B)the price of automobiles relative to shoes is lower than in the Rest of the World. C)the price of shoes relative to automobiles is lower than in the Rest of the World. D)the relative capital endowment is the same as in the Rest of the World.

Question

Assume a two-country two-good two-input model where the following relationships hold: (K/L)_U.S.> (K/L)_ROW (K/L)_automobiles> (K/L)_shoes Where (K/L)_U.S. is the capital-labor ratio in the United States, (K/L)_ROW is the capital-labor ratio in the Rest of the World, (K/L)_automobiles indicates the capital-labor ratio in the production of automobiles, and (K/L)_shoes indicates the capital-labor ratio in the production of shoes. Assume further that technology and tastes are the same in the United States and the Rest of the World. The relationships shown here indicate that, with no trade, in the United States: A)the relative labor endowment is higher than in the Rest of the World. B)the price of automobiles relative to shoes is lower than in the Rest of the World. C)the price of shoes relative to automobiles is lower than in the Rest of the World. D)the relative capital endowment is the same as in the Rest of the World.

Quizplus · Accepted Answer

The capital-labor ratio is higher in the United States than in the Rest of the World, and the capital-labor ratio is higher in the production of automobiles than in the production of shoes. This means that the United States is relatively more capital-abundant and that automobiles are relatively more capital-intensive than shoes. Therefore, the relative price of automobiles to shoes will be lower in the United States than in the Rest of the World.

Assume a Two-Country Two-Good Two-Input Model Where the Following Relationships