Suppose Australia, a Land (K)-Abundant Country, and Sri Lanka, a Labor(L)-Abundant

question 22

Essay

Suppose Australia, a land (K)-abundant country, and Sri Lanka, a labor(L)-abundant country, both produce labor and land intensive goods with the same technology.

-Using the figure above, demonstrate what happens to the composition of production (that is quantity of cloth per 1 unit of food) in Australia once trade is established between the two countries. Which country will export cloth?
What happens to the relative income of workers in Australia as a result of trade?
Does it increase or decrease?
Would land owners in Australia lobby for or against free trade?
Would land owners in Australia lobby for or against free admittance of immigrant workers?

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Definitions:

Legacies

Gifts or inheritances left to someone in a will.

Grantor Trust

A grantor trust is a legal entity in which the trust's creator maintains control over the assets and income, often leading to the income being taxed directly to the creator.

Federal Income Tax

The tax levied by the IRS on the annual earnings of individuals, corporations, trusts, and other legal entities.

Inter Vivos Trust

A legal arrangement where assets are transferred into a trust for the benefit of beneficiaries by the trustor during their lifetime.