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MBA 5326 Sample questions for midterm 1. Consider the trade between a developing country and a developed country. The developing country is an unskilled labor abundant country while the developed...

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MBA 5326
Sample questions for midterm
1. Consider the trade between a developing country and a developed country. The developing country is an unskilled labor abundant country while the developed country is a skilled labor abundant country. There are two goods, a skilled labor intensive good (SLIG) and an unskilled labor intensive good (ULIG).

  • Choose two countries and two goods that satisfy the factor endowments and factor intensities described above
  • Using the Stolper-Samuelson theorem, describe who will support and who will oppose free trade in your two countries. Use a flow chart diagram similar to the one I used in my Powerpoint slides to help you in your description and summarize the basic results of the Heckscher-Ohlin model.


2. Assume that South Korea is capital (K) abundant while Vietnam is unskilled labor (UL) abundant . Steel is capital intensive while Rice is unskilled labor intensive. Explain what happens to the returns to capital and unskilled labor after trade begins.

005_mwry95k-rhwm5lig.pptx 005_rmry95k-xbb025x0.docx
Answered Same Day Dec 21, 2021

Solution

Robert answered on Dec 21 2021
120 Votes
Running Head: MBA 5326
Running Head: MBA 5326
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PAGE
5
MBA 5326
MBA 5326
Name
Institution
Question 1
Two Countries and Two Goods that Satisfy Factor Endowments and Factor Intensities
Producing Computers(S) and Rice(R): Factor endowment in the South Korea and Vietnam
Resource
South Korea
Vietnam
Capital
100 machines
20 machines
Labou
200 workers
2,000 workers
From the diagram, South Korea is a capital abundant country whereas Vietnam is an unskilled labor abundant country. Computer is a skilled labor intensive good while rice is an unskilled labor intensive good. Mathematical representation of Capital to Labor (K/L) in the two countries is as follows:
South Korea: K/L = 100/200 = ½ = 0.5
Vietnam: K/L = 20/2000 = 1/100 = 0.01
It thus imply that LR/KR > LS/KS. In addition, it can be concluded that capital is comparatively cheaper in the South Korea while labour is comparatively cheaper in Vietnam. Therefore, South Korea enjoys a comparative advantage in producing computers because the production of rice demands more labour. On the other hand, Vietnam enjoys a relative advantage in producing rice because labour is relatively cheaper than capital (“Factors Endowment,” n.d, p. 1).
Using the Stolper-Samuelson Theorem to Describe who Support and who Oppose Free trade in South Korea and Vietnam
Following Heckscher-Ohlin model, the Stolper-Samuelson Theorem is sued to outline the principals of international trade. The theorem states that free international benefits an abundant factor while a scarce factor is harmed (Neary, 2004, p. 2).
Heckscher-Ohlin model & Stolper-Samuelson Theorem
    South Korea
    
    Vietnam
    Relatively abundance of K
    ENDOWMENTS
    Relatively abundance of L
    Comparative Advantage in computer manufacturing
    COMPARATIVE
ADVANTAGE
    Comparative Advantage in rice
    Export computers
Import rice
    TRADE
    Export rice
Import...
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