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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? 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 taken once trade opens between these two countries. Show where the relative wages of each will semms. Answer: You will search Sri-Lanka to the left of Australia on the K/L axis. Australia has a elevated relative wage. Food is the land intensive product and the relative price PC/PF is found among the two autarkic prices. The post trade relative wage is among the two autarkic ones on the vertical axis.
Explain why Relative PPP is useful when comparing countries that base their price levels on different product baskets. Answer: For instance If the U.S price level increase by
Discuss the relationship between PPP and the Law of One Price. Answer: The law of one price is applies to individual commodities while Purchasing Power Parity applies to the g
1. Explain why many Asian countries set up Export Processing Zones and why China set up Special Economic Zones. What are the similarities and differences between EPZs and SEZs?
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Criticism against Hechscher-Ohlin type trade theories is explained below: The foremost criticism leveled against Hechscher-Ohlin type trade theories are that they views compara
Q. Explain why the exchange rate model based on PPP is a long-run theory. Answer: PPP theory is a financial approach to the exchange rate. It is a long-run theory for
Q. If trade were to open up between R and P, where could the world terms of trade locate in the figure above (somewhere on the PC/PF axis)? Could relative wages (w/r) in the two c
Critical evaluation of Adam Smith''s Theory. Outline of its purest form. What is its critism?
Can you brief this concept for me?
Q. Discuss the relationship between PPP and the Law of One Price. Answer: The law of one price is applies to individual commodities while Purchasing Power Parity appli
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