Assignment 4 - International Trade 3HH3

Marcus Jensen

February 2024

(a)
The graph is shown below

Figure 0.1

(b)
GP = 2LP
1
GW = LW
2
GP + GW = 50 ⇔
1
2LP + LW = 50
2

We have that LP + LW = 40 and with a little rearrangement and substitute in the above equation we can
get:
LW = 40 − LP ⇒
1
2LP + (40 − LP ) = 50 ⇔
2
3
LP = 30 ⇔
2
LP = 20 ⇒ LW = 40 − LP = 20

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Therefore LP = 20 ∧ LW = 20 We can now calculate the lemon grass in each industry:
GP = 2LP = 2 · 20 = 40
1 1
GW = LW = · 20 = 10
2 2
Therefore GP = 40 ∧ GW = 10

(c)
GP = 2LP
1
GW = LW
2
GP + GW = 50 ⇔
1
2LP + LW = 50
2

We have that LP + LW = 37 and with a little rearrangement and substitute in the above equation we can
get:
LW = 37 − LP ⇒
1
2LP + (37 − LP ) = 50 ⇔
2
3
LP = 31.5 ⇔
2
LP = 21 ⇒ LW = 37 − LP = 16
Therefore LP = 21 ∧ LW = 16 We can now calculate the lemon grass in each industry:
GP = 2LP = 2 · 21 = 42
1 1
GW = LW = · 16 = 8
2 2
See graph below:

Figure 0.2

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(d)
we will now see what happens if the amount of lemon grass decreases by 15 pounds.

GP = 2LP
1
GW = LW
2
GP + GW = 35 ⇔
1
2LP + LW = 35
2
LW = 40 − LP ⇒
1
2LP + (40 − LP ) = 35 ⇔
2
3
LP = 15 ⇔
2
LP = 10 ⇒ LW = 40 − LP = 30
Therefore LP = 10 ∧ LW = 30 We can now calculate the lemon grass in each industry:
GP = 2LP = 2 · 10 = 20
1 1
GW = LW = · 30 = 15
2 2
The graph is shown below:

Figure 0.3

(e)
Regarding the Rybczynski theorem, we can look at our result where we compare our result in b with
c. Due to the decreases in total troll labor, the amount of troll labor and the lemon grass in the magic
wand sector decreases while the lemon grass and troll labor increases in the magic potion sector. The
output of magic wands decreases while the output of magic potions increases. The magic wands sector
is labor-abundant and therefore the decreases in labor has decreased the output of the labor-abundant
sector. When we compare b and d we see that the output of the capital-abundant sector (magic potions)

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decreases when the amount of capital decreases. Therefore the results aligns with the Rybczynski theorem
which states that: In the Heckscher-Ohlin model with two goods and two factors, an increase (decrease)
in the amount of a factor found in an economy will increase (decrease) the output of the industry that
factor intensively uses and decrease (increase) the output of the other industry.