Use the simplified offshoring model with two activities and the information below to answer the following questions:

Two countries: Techland and Prodland

Two activities: assembly, which is low-skill-labor-intensive, and product development, which is high-skill-labor-intensive

The costs of capital and trade are uniform across production activities.

a. Which country has the higher relative wage of low-skilled labor?

b. Suppose the two countries engage in trade. Which activity will Techland outsource? Explain.

c. Draw relative labor supply and demand diagrams for Prodland and Techland on separate graphs.

d. Suppose the cost of capital in Prodland decreases. What do you expect will happen to the relative wage in each country?

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Final good: JPod P Prodland: W₁=1,000, W² = 5,000 5 Techland: W=30,000, W90,000