Heckcher-Ohlin the life cycle theories
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I have some exam prep multiple choice questions (we are not going over them until 3 days before my mid term!).
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1. The MRT describes how well different factors can substitute for each other. The MRS describes the willingness of consumers to substitute one good for another. The MRS is usually bowed inward, as people want to be compensated more terms of the more abundant good as the other good become less abundant. The MRT bows outward because while some labor can substitute for capital and vice versa, it becomes increasingly difficult to produce with less and less of one of these factors. At the point where the two curves cross, MRT is equal to MRS.
2. When the price of a good in terms on another is cheaper in one country than in another country, it has comparative advantage in that good. Its production of this good will increase when it can trade with other countries, who can give it other products which are relatively more expensive in that country. (d).
3. Countries with tastes will have different the same commodity prices under autarky, but the equilibrium relative price under trade is the price that actually arises when the two countries trade. With trade, the equilibrium relative price depends not only on technology but also on demand. Thus ...
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