A different way to explain which is the capital- and which is the labor intensive good is to look at the Learner diagram in the excel simulation. Below the Learner diagram for our case. From this diagram we can directly observe the capital- and labor intensive goods. The intersections of the unit value assonants of manufactures and food with the unit value cost line show us that manufactures is the capital intensive and food is the labor intensive good. The intersection of the manufactures Squanto is at a relatively high capital level compared to labor and the other way around for the food Squanto intersection.
Furthermore, the shape of the unit value assonants show us that food is more labor intensive than manufactures, for it has a much steeper Squanto. 5. B The Learner diagram pictures the unit value assonants of manufactures and food. Why is the production of manufactures and food not equal to unity? The production of food and manufactures is made up from a certain amount Of labor and capital in the intersection Of the assonants with the unit value cost line. The production of manufactures and food is not equal to unity, for the assonants of both products intersect the unit value cost line at a different mint.
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In other words, the capital and labor intensiveness of the goods differ and therefore the intersection points are at different points at the unit value cost line. Hence the production of food and manufactures is not equal to unity. 5. C If you increase the wage rate, what happens to the prices of manufactures and food? What happens to the labor input and capital input? Explain. Below: On the left the initial case and on the right the case for a wage rate of 0. 4 instead of 0. 2. An increase in the wage rate will have an effect on the production and price of manufactures and food.
However, the effect will be substantially greater in the food industry, for this industry is the labor intensive one. As can be seen from the above tables, the labor input will halve in both the manufactures industry and the food industry. The result will be more severe in the labor intensive food industry, which is shown by the relatively big decrease in production of food (compared to manufactures) and the relatively higher price (compared to manufactures). Capital input does not change in this case, which might seem awkward, because it is now relatively cheap compared to labor.
What happens to the factor inputs? Explain. Below the Baseline case and the simulation for an increased manufactures rice of 0. 5. As we can see from the above table, the wage rate will decrease and the rental rate will increase as an effect of the higher price for manufactures. Furthermore the food and manufactures industry now both use less capital and more labor as a result Of the increase in the rental rate. Nevertheless, the production of manufactures drops due to the higher price and the production of food remains unchanged.
To explain all this changes we have to analyses our simulation from the beginning. First of all the price of manufactures increases from 0. 3 to 0. 5. This leads to an increase in the rental ate, as the manufactures production process is capital intensive. Subsequently both industries move away from the expensive capital to the relatively cheap labor, wage rate drops slightly. Hence, both sectors use more labor and less capital. The production of food stays as before and the production of manufactures drops as a result of the higher price for manufactures.
The question arises if these export patterns are in accordance with the Hecklers-Olin proposition. The dateable of question 7. 8 contains the export data presented in the main text. On the Bessie of the World Bank (norm. Workloads. Org) you can find a database called “The world development indicators”. This database offers a wide variety of statistics. Select a number of statistics that may tell you something about the factor endowment of different countries. Confront this data with the export statistics and tell whether the Hecklers-Olin proposition holds.
The Hecklers-Olin proposition is that a country will export goods that use its abundant factors intensively, and import goods that use its scarce factors intensively. In this two-factor case, a capital-abundant country will export the UAPITA-intensive good, while the labor-abundant country will export the labor-intensive good. From the huge variety of statistics offered in the database from the World Bank, we will choose one statistic to compare with each of the exports’ main input factors presented in the excel file of this question.
The main input factors are these: The statistic from the World Bank used: Primary products Food exports (% of merchandise exports) Natural resource intensive products Ores and metals exports of merchandise exports) Unskilled labor intensive products Manufactures exports of merchandise exports) Technology intensive products High- genealogy exports (% of manufactured exports) Human capital intensive products Insurance and financial services (% of commercial service exports) To conduct the experiment we’ll pick a five countries, one for each input factor.
The countries chosen are: Argentina, exports relatively much primary products. Zambia, exports relatively much natural resource intensive products. China, exports relatively much unskilled labor intensive products. Japan, exports relatively much technology intensive products. Canada, exports relatively much human capital intensive products. The table below shows the exports of the abovementioned countries.
The table below shows the Food exports (% of merchandise exports), Ores and metals exports Of merchandise exports), Manufactures exports Of merchandise exports), High-technology exports (% of manufactured exports), and Insurance and financial services (% of commercial service exports) for the selected countries. In the High technology exports we expected Japan to have the highest value while China obviously has a much higher value there. This can be due to the fact that we underestimated China in this sector or the more likely explanation that Japan just exports more manufactured goods.
In the Ores and metals exports of merchandise exports) we expected Zambia to have the highest value, for Zambia exports relatively much Natural resource intensive products. Our expectation came true, since Zambia has a much higher value than the other countries in this sector. In the Manufactures exports (% of merchandise exports) we expected China to have the highest value, as China exports relatively much unskilled labor intensive products.
China does have the highest value of all, however Japan is close to China. This can be explained by the fact that not all manufactures can e produced by unskilled labor and that the merchandise exports are different in China and Japan. In Insurance and financial services (% of commercial service exports) Canada was ought to have the highest value, because Canada exports relatively much Human capital intensive goods. As can be seen below Canada did have the highest value and our expectation therefore came true.