#1) The table below is of hourly labor productivity (i.e., output per employee).

	Rice	Cheese
Labor Productivity: China/F	8 kg/hour	4 kg/hour
Labor Productivity: Japan/G	6 kg/hour	2 kg/hour

1. What are the absolute advantages in this example?

1. What are the comparative advantages in this example? How do you know this?

1. After a trade liberalization what would China export and import? Why?

1. After a trade liberalization what would Japan gain? Why?

#2) A product is produced in a monopolistically competitive sector with scale economies. If this sector exists in two countries, and these two countries engage in trade with each other, how would production change?

#3) Home produces capital intensive manufactured goods and agricultural products. Suppose that FDI doubles the amount of capital in Home.

1. Assuming constant returns to scale, what happens to Home's production possibilities frontier (PPF) in the short run?
2. What happens to the capital-labor ratio in long run?
3. What happens to the free trade relative price of manufactured goods in long run? Why?