Use the specific factor model to analyze a simplified version of a liberalization of trade between Brazil and Japan. Assume that there are two goods that people want to buy: coffee and cars. Assume that there are three production factors: land, capital and labor. Land is specific to coffee, capital is specific to cars and workers can work in both industries. Assume that, under autarky, coffee is cheaper in Brazil than in Japan. How does the price of coffee in Brazil change when Brazil opens up to international trade? Explain your answer
Use the specific factor model to analyze a simplified version of a liberalization of trade between Brazil and Japan. Assume that there are two goods that people want to buy: coffee and cars. Assume that there are three production factors: land, capital and labor. Land is specific to coffee, capital is specific to cars and workers can work in both industries. Assume that, under autarky, coffee is cheaper in Brazil than in Japan. How does the price of coffee in Brazil change when Brazil opens up to international trade? Explain your answer
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Use the specific factor model to analyze a simplified version of a liberalization of trade between
Brazil and Japan. Assume that there are two goods that people want to buy: coffee and cars. Assume
that there are three production factors: land, capital and labor. Land is specific to coffee, capital is
specific to cars and workers can work in both industries.
Assume that, under autarky, coffee is cheaper in Brazil than in Japan. How does the price of coffee
in Brazil change when Brazil opens up to international trade? Explain your answer
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