Problem
a) Suppose Swaziland offers lucrative employment opportunities. As a result, 5000 Lesotho youth migrated to Swaziland. Assume that the capital and labour market are in equilibrium. Using an Edgeworth box and the Rybczynski proposition describe the effects of labour migration in Lesotho on the production of Chakalaka and Beer.
b) Assuming Lesotho has a high intensity of labour abundance whilst Swaziland has a high intensity of capital abundance. Using the production possibilities curve and the Heckscher- Ohlin proposition, explain how Lesotho and Swaziland can gain from international trade by exchanging Chakalaka and Beer.