1. There are 40 units of labor in Japan and 75 units of labor in Taiwan. There are 20 units of land in Japan and 5 units of land in Taiwan. You are given the following information about production relationships.

Butane

a_LB = 1

a_TB = 5

Apple

a_LA = 3

A_TA = 5

Circle the right answer:

1. Determine each country's factor abundance and each good's factor intensity.

Japan Labor abundant/Land abundant

Taiwan Labor abundant/Land abundant

Butane Labor intensive/Land intensive

Apple Labor intensive/Land intensive

1. According to the Heckscher Ohlin model, which country will export butane?

Japan Taiwan

1. Suppose in Taiwan the supply of labor decreased from 75 units to 20 units (everything else remains the same), which country will export butane?

Japan Taiwan

2. Assume that the technology, available to both countries, is based on a fixed coefficient production function. Suppose that Portugal has 100 workers and 120 units of capital, whereas England has 150 workers and 100 units of capital. Also suppose that each cask of wine requires 3 workers and 1 unit of capital to produce and each bolt of cloth requires 2 workers and 4 units of capital. Answer the following questions based on the HOS model.

1. Determine the factor intensities of the goods and the factor abundances of the countries. Circle the right answer.

Portugal Labor abundant / Capital abundant

England Labor abundant / Capital abundant

Wine Labor intensive / Capital intensive

Cloth Labor intensive / Capital intensive

1. At Portugal, under autarky if wages and returns to capital both equal $100 then calculate price of wine and price of cloth for Portugal under autarky.

P_W = ______ P_C = _______

1. In England, under autarky if price of cloth is $640 and price of wine is $360 then find wages and return to capital for England under autarky.

w = _______ r = ________

1. Suppose that under trade the price of cloth is $620 and the price of wine is $380. Find wages and returns to land in both countries under trade.

w = _______ r = ________

1. Who benefits and who loses from trade in each country? Circle the right answer.

England Labor: benefits/ loses Capital: benefits / loses

Portugal Labor: benefits/ loses Capital: benefits / loses