The table below represents autarky and free-trade production, consumption, and factor use for a country. Did the capital–labor ratio used in the production of good X rise, fall, or remain unchanged as Suburbia moved from autarky to free trade?

Question

BlackTom AI · Accepted Answer

To address the question, we compare Suburbia’s production setup in autarky versus under free trade for the production of good X.
Option 1: It rose, then fell. This would require that the capital–labor ratio in X first increased under free trade and later decreased, which is not suggested by a straightforward move to specialization under free trade where the country tends to shift production toward the good that uses relatively more capital if X is the capital-intensive good. Without evidence of a reversal in relative demand or a second-stage adjustment, this two-phase change is unlikely.
Option 2: It remained unchanged. If free trade did not alter the relative intensity of inputs in X, then Suburbia would have produced X with the same capital per unit of labor as in autarky. However, free trade typically induces a shift toward the good that uses relatively more of the country’s abundant factor, and/or a reallocation that changes input ratios, making no change in the ratio unlikely unless exactly the same technology and input structure persist.
Option 3: It rose. This aligns with the intuition of comparative advantage in a two-good, two-factor setting: if Suburbia exports X under free trade and X is more capital-intensive than the other good, the production of X tends to employ more capital per unit of labor than in autarky, raising the capital–labor ratio used in X.
Option 4: It fell. This would imply that free trade reduces the capital intensity of X production, which would be the case only if X were the labor-intensive good or if Suburbia’s relative factor endowments shifted in a way that favored labor over capital for X under free trade. Given the common setup where the country exports the capital-intensive good under free trade, this is inconsistent with the standard outcome.
In sum, the most consistent interpretation is that the capital–labor ratio used in producing good X rises when moving from autarky to free trade, reflecting specialization toward the capital-intensive good under the country’s comparative advantage. Therefore, the correct choice is the option stating that it rose.

01:220:300:01 INTERNATIONAL ECON Heckscher-Ohlin model practice questions (not for credit)

The table below represents autarky and free-trade production, consumption, and factor use for a country. Did the capital–labor ratio used in the production of good X rise, fall, or remain unchanged as Suburbia moved from autarky to free trade?

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