Homework Question on International trade
- “The Heckscher-Ohlin Trade Theory is about how two countries can get greater gains from trading with each other if they have different resources – one have more labor and the other have more capital (that is technical equipment and machinery).
- By specializing in production, and by trading with other countries, it is possible for countries to increase their incomes. Even though countries as a whole benefit from specialization and international trade, all groups in society, workers and capitalists, do not gain according to the Heckscher-Ohlin theory. If international trade leads a country to specialize in producing goods that require lots of workers and little capital, such a specialization increases wages (which benefits the workers) but decreases the income of the capital owners. But the country as a whole benefits because the gain of the workers is bigger than the loss of the capital owners.
- The Trade Ruler game is set in “the Hechscher-Ohlin world” you are to make an island (a country) prosper by trading. As a ruler of an island you want to engage in international trade to achieve this goal” (Nobel Media, 2011).
- After playing the game (estimated to last about 15 minutes), answer the following questions in the form of a short essay. Your completed essay should be at least 250 words in length:
- 1. Did your selected country have more labor or capital?
2. Why did you select this particular country?
3. Did your selected trading partner have more labor or capital?
4. Why did you select this particular trading partner?
5. Did you increase or decrease the welfare of your country by engaging in international trade? Why?Games:http://www.nobelprize.org/educational/economic-sciences/trade/
Homework Answer on International trade
I selected to be the king of a country with more capitals for my case study. I chose this country because I believed that with more capitals, I would be able to make my country prosperous. On the other hand, I selected my trade partner to be the country with more labor and little capital. In relation to Heckscher-Ohlin trade theory, I selected my trade partner to be the country with more labor than my country because I could benefit from the labor force in that country (Ghai and Gupta 278).
At the same time, my trade partner could find it worthwhile to do business with my country because it will benefit from the capital in my country. This means that each country could benefit from each other unlike selecting a country with more capital as my country.Because of doing this, I was able to increase the welfare of my country even if I did not maximize the opportunities that were available to me.
This notwithstanding, the performance of my country improved as the performance for my trade partner improved as well. The simple reason for improved performance for my country as well as improved performance for my trade partner was the fact that each of us benefited from the trade. My country benefited from excess labor force from the other country while the other country benefited from excess capital in my country.