AP/ECON 3150 International Trade

Problem set 3 Solutions

Problem 1

a. Answer: the problem says that Home is K-abundant and that steel

production in K-intensive. Therefore, Home PPF will be skewed towards

                                        s

steel output while Foreign PPF will be skewed towards wheat output.

b. Answer: Home no-trade equilibrium is at point EA , and Foreign no-

trade equilibrium is at point EA . We will use subindex A to denote

                                                                autarky

and T to denote trade With identical utilities, Home no-trade production

                    .                               s

and consumption of S and W corresponds to a relative price of wheat that

is higher than that in...