Suppose Australia, a land (K)-abundant country, and Sri Lanka, a labor(L)-abundant country, both produce labor and land intensive goods with the same technology.

-Use the diagram above to identify the pre-trade situation for Australia and Sri Lanka. Where on the K/L axis will you find each of the two countries?
Which of the two countries has a higher relative wage, w/r?
Which product is the labor intensive, and which is the land intensive one?
Show where the relative price of cloth to food will be found once trade opens between these two countries. Show where the relative wages of each will appear.

Question

Suppose Australia, a land (K)-abundant country, and Sri Lanka, a labor(L)-abundant country, both produce labor and land intensive goods with the same technology.
 
-Use the diagram above to identify the pre-trade situation for Australia and Sri Lanka. Where on the K/L axis will you find each of the two countries?
 Which of the two countries has a higher relative wage, w/r?
 Which product is the labor intensive, and which is the land intensive one?
 Show where the relative price of cloth to food will be found once trade opens between these two countries. Show where the relative wages of each will appear.

Quizplus · Accepted Answer

The Answer of Suppose Australia, a land (K)-abundant country, and Sri Lanka, a labor(L)-abundant country, both produce labor and land intensive goods with the same technology.
 
-Use the diagram above to identify the pre-trade situation for Australia and Sri Lanka. Where on the K/L axis will you find each of the two countries?
 Which of the two countries has a higher relative wage, w/r?
 Which product is the labor intensive, and which is the land intensive one?
 Show where the relative price of cloth to food will be found once trade opens between these two countries. Show where the relative wages of each will appear.

Suppose Australia, a Land (K)-Abundant Country, and Sri Lanka, a Labor(L)-Abundant