Trade Leads to a Convergence of Relative Prices Without trade: Home equilibrium relative price is equilibrium relative price is _______ • Trade leads to convergence of relative prices. & Foreign Like the Ricardian model, the Heckscher-Ohlin model predicts a convergence of relative prices with trade. Relative price of cloth PP (PJPA) (POP) (POP) . With trade, the relative price of cloth rises in the relatively labor abundant (home) country and falls in the relatively labor scarce (foreign) country. RD Home RS Relative quantity of cloth, QO,
Trade Leads to a Convergence of Relative Prices Without trade: Home equilibrium relative price is equilibrium relative price is _______ • Trade leads to convergence of relative prices. & Foreign Like the Ricardian model, the Heckscher-Ohlin model predicts a convergence of relative prices with trade. Relative price of cloth PP (PJPA) (POP) (POP) . With trade, the relative price of cloth rises in the relatively labor abundant (home) country and falls in the relatively labor scarce (foreign) country. RD Home RS Relative quantity of cloth, QO,
Chapter4: Prices: Free, Controlled, And Relative
Section: Chapter Questions
Problem 5WNG
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