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Q. Consider that the relative capital abundance of Australia was so much greater than that of Sri-Lanka, that we would have to locate Australia far to the right on the K/L axis. If this were so far to the right that there was no area of overlap on the w/r axis, then which product would Australia export?
Answer: Australia export food like a result of trade wages will fall in Australia and will rise in Sri-Lanka. Though in this case the wages in Australia will stay higher than in Sri-Lanka create an incentive for migration from the latter to the former country.
Q. Discuss the main factors affecting the position of the DD schedule. Answer: The level of government taxes, demand, and investment and the domestic and foreign price
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Q. Use the diagram below taken from Figure 4-4 to identify the pre-trade situation for Australia and Sri-Lanka. Where on the K/L axis will you search each of the two countries? W
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