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International Trade

Please help me to get an idea about these questions:

1) China and Japan have two factors of production, land and labor. Both countries produce two goods, corn, which requires more land, and computers, which requires more labor. Given that China is abundant in land and Japan is abundant in labor, what will be the effect on the terms of trade an increase in Japan's labor supply? What will be the welfare effect of a decrease in land used for corn in China?

2) Explain what each of the following terms are, and explain how each is used in the standard model.
isovalue lines
production possibilities frontier
indifference curve

3) If rice production is land intensive and computer production is labor intensive, though both good require some land and labor, the two-good production possibilities frontier will change in which of the following ways given an increase in available labor?
The curve will outward or inward ? will it biased toward computers or rice ?

Solution Preview

Please help me to get an idea about these questions:

1) China and Japan have two factors of production, land and labor. Both countries produce two goods, corn, which requires more land, and computers, which requires more labor. Given that China is abundant in land and Japan is abundant in labor, what will be the effect on the terms of trade an increase in Japan's labor supply? What will be the welfare effect of a decrease in land used for corn in China?
If Japan's labor supply increases the terms of trade will move in favor of Japan. The reason is that since computers are produced with labor, Japan will be able to produce more computers with the increase in labor. Further, there will also be a decrease in the production cost of computers so more computers will be exported from Japan to China. The terms of trade will become more favorable to Japan.
If there is a decrease in land used for corn in ...

Solution Summary

This response presents a brilliant discussion on International Trade

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