1. Assume that a country is endowed with equal amounts of K and T. Prices are Px = Py = $2 and the country's total labor force is L =300= Lx + Ly. Labor is fully mobile between the two sectors. K is specific to the X sector and T is specific to the Y sector. Total endowment of K is 180 and total endowment of T is 180. Marginal products are given as: MPLX= K/Lx and MPLY= T/Ly. MPKX= Lx/K and MPTY= Ly /T. a. How is labor distributed between the X and Y sectors in equilibrium? Suppose: Px increases by 200% and Py by 100%. b. What is the new labor distribution? c. Has output of X and Y changed? d. What happens to i. The real wage of workers ii. The real return to capital iii. The real return to landowners e. Perform the same analysis again (solve b-d again), but for a situation where Px increases by 50% and Py remains stable. How is your answer different?2. Suppose there are two countries: A and B. Each country can produce manufacturing goods (M) using labor (L) and capital (K) and food (F) using labor (L) and land (T). The only difference between these two countries is that the supply of land in country A is lower than the supply of land in county B. a. Plot both countries PPF on the same graph. Illustrate why the two countries PPFs are different. b. Show graphically the labor allocation in each country. c. Which country has comparative advantage in producing M? d. Now assume these two countries start trading. i. What happens to the relative price of manufacturing in country A? ii. What happens to the allocation of labor in country A? iii. Are capital owners better off in country A? iv. Are land owners better off in country A? v. Are workers better off in country A?3. Assume that tastes and technology are identical in China and Japan. Assume that China is labor abundant and Japan is capital abundant. Assume that production of clothing is labor abundant and Japan is capital abundant. Assume that production of clothing is labor intensive and production of automobiles is capital intensive. a. Sketch the production possibilities frontiers for China and Japan. Explain briefly why your drew them as your did. b. In autarky, which country has a comparative advantage in production of which good? c. What does the Hecksher-Ohlin Theorem predict would happen of trade were opened between China and Japan? d. Show and label the autarky and unrestricted-trade equilibria, production and consumption points, imports and exports, autarky price ratios and terms of trade. 4. Evaluate the validity of the following statement for the Ricardian Model, the Specific Factors Model and the H-O Model: "If productivity increases in X industry (i.e. the same combination of inputs can produce more output), the output in Y industry remains unchanged."