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1. Suppose there are only two factors of production, labor and capital, and two goods, cloth and widgets. Country A has 5M workers and 1M
1. Suppose there are only two factors of production, labor and capital, and two goods, cloth and widgets. Country A has 5M workers and 1M units of capital. The ROW has 3B workers and 2B units of capital. Producing cloth takes 4 workers per unit of capital and producing widgets requires 2 workers per unit of capital. a. Which country is relatively labor abundant? Which country is relatively capital abundant? Briey explain. b- Which good is relatively labor intensive? Which good is relatively capital intensive? Briey explain. c. Which country will export widgets? Which country will export cloth? Briey explain. d. When trade opens between Country A and the ROW, what happens to the real wages earned by Country A workers in the long run? Briey explain. e. According to the Factor Price Equalization Theorem, what will be the longrun relationship between wages in the Country A and the ROW following the opening of trade? The rental price of capital? Briey explain
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