Taking into account Heckscher Ohlin assumptions, Two countries East and West produce two goods, X and Y with the following technologies (Leontief production functions):
X=min{2 Lx, 5 Kx}
Y=min{10 Ly, 2Ky}
East has a labor supply of 100 and a capital stock of 300. West country has a labor supply of 150 and a capital stock of 150.
(a) Write down unit labor and capital uses for X and Y, (amount of labor/capital used toproduce 1 unit of X/Y)?
(b) Which country is labor abundant?
(c) Which good does East country has a comparative advantage of producing? Why?
(d) Write down the labor and capital constraints for both East and West
(e) Graph the PPF (production possibility frontier) of each country.
(f) Suppose the autarky price at East is Px/Py = 3. What combination of X and Y will East consume at the autarky? How much capital and how much labor will be allocated in Xsector? How much capital and how much labor will be allocated in Y sector?
(g) Suppose the autarky price in the West country is Px/Py = 6. What combination of Xand Y will West consume at the autarky? How much capital and how much labor will beallocated in X sector? How much capital and how much labor will be allocated in Y sector?