Q. This problem uses the Heckscher-Ohlin model to predict the direction of trade. Consider the construction of handmade rugs moreover assembly line robots in Canada and India.
a. Which country would you expect to be relatively labor-abundant also which is capital abundant and why?
b. Which industry would you expect to be relatively labor-intensive also which is capital intensive and why?
c. Given your answers to (a) and (b) also draw production possibilities frontiers for each country.
Assuming that consumer preferences are the same in both countries, add indifference curves and relative price lines (without trade) to your PPF graphs. Explain what the slopes of the price lines tell you about the direction of trade?
d. Allowing for trade between countries, redraw the graphs and include a "trade triangle" for each country. Identify and label the vertical and horizontal sides of the triangles as either imports or exports.