ECON 440 Spring 2013 – Homework 3 Due Sunday, March 10 by 11:59 pm MST Consider two countries, Vietnam and China, producing two goods, textiles and televisions. Suppose that textile is relatively...

ECON 440 Spring 2013 – Homework 3
ECON 440 Spring 2013 – Homework 3
Due Sunday, March 10 by 11:59 pm MST


1. Consider two countries, Vietnam and China, producing two goods, textiles and televisions.
Suppose that textile is relatively labor-intensive. Vietnam has 20 units of capital and 16 units of
effective labor and China has 300 units of capital and 150 units of effective labor.

a. Which country is relatively capital-abundant? Explain. (2 points)
availability of factors of production
capital effective labour capital-effective labour ratio
vietnam 20 16 1.25
china 300 150 2
As capita-effective labor ratio is higher in China, i.e, each unit of effective labor has more capital
to work with in China than Vietnam, we can conclude that Vietnam is relatively more labor
intensive.
b. Which country will export textiles? Explain. (2 points)
Following H-O theorem, we can conclude that each country exports the commodity which uses
its relatively abundant factor of production more intensively. In this case, as textiles is relatively
labor intensive, Vietnam will export textile, the relatively labor intensive commodity.
c. In Vietnam the production of which good decreases under trade? In China? (2 points)...