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Chapter 8: Problem 5

Shoes are labor-intensive and satellites are capitalintensive to produce. The United States has abundant capital. China has abundant labor. According to the Heckscher-Ohlin model, which good will China export? Which good will the United States export? In the United States, what will happen to the price of labor (the wage) and to the price of capital?

Short Answer

Expert verified
Answer: Based on the Heckscher-Ohlin model, China will export shoes (labor-intensive goods), and the United States will export satellites (capital-intensive goods). In the United States, the price of labor (wages) will decrease, and the price of capital will increase.

Step by step solution

01

Understand Given Information

According to the given information, shoes are labor-intensive to produce, and satellites are capital-intensive to produce. The United States has abundant capital, and China has abundant labor.
02

Identify Exports for Each Country

Based on the Heckscher-Ohlin model, China will export the good that uses its abundant factor intensively, which is labor. In this case, since shoes are labor-intensive, China will export shoes. The United States will export the good that uses its abundant factor intensively, which is capital. In this case, since satellites are capital-intensive, the United States will export satellites.
03

Determine the Effect on the Price of Labor and Capital in the United States

Exporting capital-intensive goods, like satellites, would lead to an increase in the demand for capital within the United States. This would cause the price of capital to rise. On the other hand, with the United States exporting capital-intensive goods and importing labor-intensive goods, such as shoes, the demand for labor in the United States would decrease. This would lead to a decrease in the price of labor (wages) in the country. In conclusion, based on the Heckscher-Ohlin model: 1. China will export shoes (labor-intensive goods) 2. The United States will export satellites (capital-intensive goods) 3. In the United States, the price of labor (wages) will decrease, and the price of capital will increase.

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Most popular questions from this chapter

Since 2000 , the value of U.S. imports of men's and boy's apparel from China has more than tripled. What prediction does the Heckscher-Ohlin model make about the wages received by labor in China?

The United States is highly protective of its agricultural industry, imposing import tariffs, and sometimes quotas, on imports of agricultural goods. This chapter presented three arguments for trade protection. For each argument, discuss whether it is a valid justification for trade protection of U.S. agricultural products.

The U.S. Census Bureau keeps statistics on U.S. imports and exports on its website. The following steps will take you to the foreign trade statistics. Use them to answer the questions below. i. Go to the U.S. Census Bureau's website at www.census.gov ii. Under the heading "Topics" select "Business" and then select "International Trade" under the section "Data by Sector" in the left menu bar iii. At the top of the page, select the tab "Data" iv. In the left menu bar, select "Country/Product Trade" v. Under the heading "North American Industry Classification System (NAICS)-Based," select "NAICS web application" vi. In the drop-down menu "3-digit and 6 -digit NAICS by country," select the product category you are interested in, and hit "Go" vii. In the drop-down menu "Select 6 -digit NAICS," select the good or service you are interested in, and hit "Go" viii. In the drop-down menus that allow you to select a month and year, select "December" and "2013," and hit "Go" ix. The right side of the table now shows the import and export statistics for the entire year 2013 . For the questions below on U.S. imports, use the column for "Consumption Imports, Customs Value Basis." a. Look up data for U.S. imports of hats and caps: in step (vi), select "(315) Apparel \& Accessories" and in step (vii), select "(315220) Men's and Boys' Cut and Sew Apparel." From which country do we import the most apparel? Which of the three sources of comparative advantage (climate, factor endowments, and technology) accounts for that country's comparative advantage in apparel production? b. Look up data for U.S. imports of grapes: in step (vi), select "(111) Agricultural Products" and in step (vii), select "(111332) Grapes." From which country do we import the most grapes? Which of the three sources of comparative advantage (climate, factor endowments, and technology) accounts for that country's comparative advantage in grape production? c. Look up data for U.S. imports of food product machinery: in step (vi), select "(333) Machinery, Except Electrical" and in step (vii), select "333241 Food Product Machinery." From which country do we import the most food product machinery? Which of the three sources of comparative advantage (climate, factor endowments, and technology) accounts for that country's comparative advantage in food product machinery?

Producers in import-competing industries often make the following argument: "Other countries have an advantage in production of certain goods purely because workers abroad are paid lower wages. In fact, American workers are much more productive than foreign workers. So import-competing industries need to be protected." Is this a valid argument? Explain your answer.

Both Canada and the United States produce lumber and footballs with constant opportunity costs. The United States can produce either 10 tons of lumber and no footballs, or 1,000 footballs and no lumber, or any combination in between. Canada can produce either 8 tons of lumber and no footballs, or 400 footballs and no lumber, or any combination in between. a. Draw the U.S. and Canadian production possibility frontiers in two separate diagrams, with footballs on the horizontal axis and lumber on the vertical axis. b. In autarky, if the United States wants to consume 500 footballs, how much lumber can it consume at most? Label this point \(A\) in your diagram. Similarly, if Canada wants to consume 1 ton of lumber, how many footballs can it consume in autarky? Label this point \(C\) in your diagram. c. Which country has the absolute advantage in lumber production? d. Which country has the comparative advantage in lumber production? Suppose each country specializes in the good in which it has the comparative advantage, and there is trade. e. How many footballs does the United States produce? How much lumber does Canada produce? f. Is it possible for the United States to consume 500 footballs and 7 tons of lumber? Label this point \(B\) in your diagram. Is it possible for Canada at the same time to consume 500 footballs and 1 ton of lumber? Label this point \(D\) in your diagram.
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