Essay
Suppose Australia, a land (K)-abundant country, and Sri Lanka, a labor(L)-abundant country, both produce labor and land intensive goods with the same technology.
-Using the figure above, demonstrate what happens to the composition of production (that is quantity of cloth per 1 unit of food) in Australia once trade is established between the two countries. Which country will export cloth?
What happens to the relative income of workers in Australia as a result of trade?
Does it increase or decrease?
Would land owners in Australia lobby for or against free trade?
Would land owners in Australia lobby for or against free admittance of immigrant workers?
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The proportion of food to cloth will inc...View Answer
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