We are now in a position to state the theorem:"Suppose that two countries have free trade,
perfect competition and no distortions; they have the same CRTS technology without factor
intensity reversals, and both countries are incompletely specialized in a trade equilibrium. In
this case, the real return to each factor is the same in both countries.
The theorem implies that trade in commodities eliminates any motivation for trade in factors."
given above info....answer this...
the necessary and sufficient condition for factor price equalization in h-o model is:
a.factor intensity reversals
c. non-CRTS technology
d. dissimilar production function
1.assume that the cost of a bootle of mineral water in india and the Us reflects the relative cost of living in two coubntries and incrases at the same rate as the cost of living in respective countries. the price of bootle of mineral water in 2000 is reported as being rs 30 in india and $2 in US. the excahnge rate of the ruppee in that year is reported to have averaged rs 45 to the dollar.the inflation in the cost of living between 1991 and 2000 was 33.3 percent in Us and 50 percent in india.the exchange rate of the ruppee in 1991 was rs 20 to the dollar.
would it be right to say that since the total inflation in Us during the decade was much lower than in india, a person regularly travelling from india to US would find that country relatively less expensive to visit in 2000 as compared with 1991.expalin your answer.
i found that real exchange rate has risen btwn 1991-2000...this means rupee depriciated against dollar....nd this implies that us people wud find it more attractive to come to India nd purchase things........tell me where i am wrong please..
If exchange rate has risen to 3 from the level of 1.5, that means A Indian citizen would find it relatively expensive visiting USA compared to 1991. Or vice-versa, an American would find it cheaper. You are right.(Acc to me :P)