Q3. Suppose that country A produces two goods (a labor-intensive good X, furniture, and a capital-intensive good Y, autos) and is considering forming a free trade agreement with one of its trading partners. The future free trade agreement is opposed by labor unions in country A. Could you infer which type of country (namely, capital- or labor-abundant) country A and its trading partner are, respectively?What would happen to the two countries’ w/r ratios (the ratios of wage rate relative to capital rental rate) after the formation of the free trade agreement? Your answer:

Labor intensive implies a procedure or industry that needs a large amount of labor to produce its…

Answered: Suppose that country A produces two…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter33: International Trade

Section: Chapter Questions

Problem 2SCQ: Brazil can produce 100 pounds of beef or 10 autos. In contrast the United States can produce 40...

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Q3. Suppose that country A produces two goods (a labor-intensive good X, furniture, and a capital-intensive good Y, autos) and is considering forming a free trade agreement with one of its trading partners. The future free trade agreement is opposed by labor unions in country A.

Could you infer which type of country (namely, capital- or labor-abundant) country A and its trading partner are, respectively?
What would happen to the two countries’ w/r ratios (the ratios of wage rate relative to capital rental rate) after the formation of the free trade agreement?

Your answer:

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