1. Consider two countries (Russia and India) that can produce two goods (Books and Automobiles) using two factors of production (Economists and Workers). Assume the regular assumptions of the Heckscher-Ohlin model apply and that factor endowments between the two countries are given by:

Russia India

Economists 240 80

Workers 12,360 2480

Likewise assume that average factor requirements for Books and Automobiles (in both Russia and India) are given by:

Books Automobiles

Economists 2 1

Workers 560 432

(a) Which country has a comparative advantage in which good? What will be the pattern of trade? Explain.

(b) (Points: 3) Demonstrate your answer to (a) by drawing the production possibility frontiers as well as the price lines (with both autarky and trade) for both Russia and India. Place books on the vertical axis. On each picture, label the autarky production/consumption point A, the production point after trade B and the consumption point after trade C (note: you cannot numerically solve for any of these points. I will just be checking that your pictures and where you place these points are consistent with your answer in part (a)).

(c) Will Economists in the Automobile industry in Russia benefit or be hurt by trade with India in the short-run? Explain.

(d) Will Economists in the Automobile industry in Russia benefit or be hurt by trade with India in the long-run? Explain.